Key Post Is gold a good investment?

smiley said:
Its interesting to read Jeremy Granthams (GMO) latest views on gold from his latest quarterly newsletter

Religious wars (or, Should we buy gold?)

Everyone asks about gold. This is the irony: just as Jim Grant tells us (correctly) that we all have faith-based paper currencies backed by nothing, it is equally fair to say that gold is a faith-based metal. It pays no dividend, cannot be eaten, and is mostly used for nothing more useful than jewelry. I would say that anything of which 75% sits idly
and expensively in bank vaults is, as a measure of value, only one step up from the Polynesian islands that attached value to certain well-known large rocks that were traded. But only one step up. I own some personally, but really more for amusement and speculation than for serious investing. It may well work and it may not. In the longer run,
I believe that resources in the ground, forestry, agriculture, common stocks, and even real estate are more certain to resist any infl ation or paper currency crisis than is gold.
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greed and fear drive up the price in equal measure , right now we have a fair bit of the former and a whole lot of the later , i think gold is going upwards for a while yet , i do however think we are approaching bubble territory for the simple reason that the man in the street is begining to take a keen interest in it
 
is gold at the begining of a substantial correction

gold has been dropping since the begining of the year and with a surprisingly possitive bond auction by portugal , spain and italy in the past week , the eurozone ( crisis ) seems to have eased , the american economy is looking good for 2011 , the dollar has recovered strongly this past two months and asia looks like slowing down a bit , ( china and india bought gold by the truckload while booming ) add to that the fact that stocks and shares are back in vogue , the biggest sell off in gold has been through ETF,s , banks ( who bought gold by the truckload this past few years aswell ) might be ditching prescious metals and getting back into stocks

i cant think of a single factor which would contribute to a tenth successive year for growth in the price of gold
 
Gold strikes me as the modern equivalent of the Dutch tulip bubble of the 17th ? century. The only way is down methinks ! I wonder what will happen to all those outlets that have been popping up around the country to buy gold? See attached link for gold price trends. Price seems to have stabilised somewhat recently, but that looks to me like a blip on a downward cycle to me.http://www.goldprice.org/gold-price-history.html
 
People who call gold in a bubble have no idea of emperical economic history of what constitutes a real bubble.

Just because it has risen 5 fold from a 100 year low (inflation adjusted) as measured in terms of a confetti dollar from its 2000 low, does not constitute a bubble.

Please review the following about gold and see what a real bubble is -

[broken link removed]

Sure gold can correct 10%, 20%, 30%. Easily. Bubble? no way.

It will become the ultimate bubble once all those gold outlets start selling their gold to joe public, instead of buying it. By this point it will be selling for $2,000 - $10,000 an ounce.
 
Not sure I agree with you ringledman ( tho I know where your coming from).Whether you call the current high value a bubble or not is a judgement call. Gold is usually a safety bet in troubled waters ( like now). It has little inherent value apart from scarcity and perception of value - and that can change. You can't make many useful things with it, it could hardly be decribed as an essential material, like copper or aluminium for example. You can's eat it either. I wouldn't buy gold at current prices. I did hear John Lowe talk about it recently on Newstalk. His take on it was that it should form a minor part (around 5-10%) of a diverse portfolio. My take is that they can keep it at current prices. I might consider it after it has fallen substantially from it's current levels.
 
horusd said:
Not sure I agree with you ringledman ( tho I know where your coming from).Whether you call the current high value a bubble or not is a judgement call. Gold is usually a safety bet in troubled waters ( like now). It has little inherent value apart from scarcity and perception of value - and that can change. You can't make many useful things with it, it could hardly be decribed as an essential material, like copper or aluminium for example. You can's eat it either. I wouldn't buy gold at current prices. I did hear John Lowe talk about it recently on Newstalk. His take on it was that it should form a minor part (around 5-10%) of a diverse portfolio. My take is that they can keep it at current prices. I might consider it after it has fallen substantially from it's current levels.
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agree with all your posts so far but im not sure id place that much value in what john lowe says , hes an incredibley cautious and conservative man
 
It depends what you mean by fall substantially. As I said it could easily fall 10-30%, maybe 50%, yet remain in its long term (secular) bull market. The 2008 fall was huge, yet gold regained its ground afterwards.

Gold will eventually peak on a parabolic spike, in which the price rises 100% to maybe 500% in a matter of months. Some way off yet.

I agree 5-10% in gold is a good allocation. Personally I prefer dividend paying stocks but like an insurance element to balance ones portfolio.

Gold is an awful long, long term investment (i.e. 40 years plus), but it goes in cycles and now its cycle is a SECULAR uptrend. It is worth holding for maybe 2-5 years longer. Perhaps 10 years.
 
Thanks Ringledman, likewise I prefer dividend paying stock of companies that actually make things or sell a service. Would you mind explaining the term SECULAR in the context of your last post (SECULAR uptrend)? I haven't heard this term before.
 
Hi,

Secular refers to the long term trend for an asset class.

I believe in long term 20-30 year uptrends followed by 20-30 year downtrends in asset class such as equities, commodities and bonds.

The reason for these long term trends comes down to a number of long term cycles such as interest rates or the lag between commodity extraction (ie 10 year to produce a working gold mine) and the demand are often out of balance. Likewise once there is an oversupply of mines/oil rigs/farms etc then often the price falls due to the oversupply. Then there is a lack of investment in commodity extraction as we had in the 1990s that causes the next upswing.

There is also the kondratieff cycle to consider.

Asset class move in long term secular trends due to a number of long term fundamentals.

My view is -

Commodities - 1/2 way through a secular bull market uptrend.

Bonds - Virtually at the end of a 25 year secular bull market (avoid certain bonds, ie western governments!)

Equities - Nearing the end of a secular bear market (treat with caution and buy value/cheap stocks only).

My view is that you don't want to get the big secular view wrong, if you are a long term investor (10 years+).

For short term investors or traders the secular view is less relevant as within every secular bull or bear market are opposing 'Cyclical' bear and bull markets.

The reason for long term secular bear or bull markets in certain asset classes is fascinating I think. If you want to read more I advise reading 'Tomorrow's gold' by Marc Faber.

He is a legend on economic history from a secular point of view.

Goggle Secular v Cyclical. One good analogy I read:

'In the financial markets, analysts generally distinguish between secular and cyclical trends. The former refer to powerful, long-term directional moves, while the latter represent shorter-term swings around the primary trend'
 
Thanks for that Ringledman, I am a L.T. investor, so all of that info is useful. I'll have a look at Faber as well.
 
ringledman said:
It depends what you mean by fall substantially. As I said it could easily fall 10-30%, maybe 50%, yet remain in its long term (secular) bull market. The 2008 fall was huge, yet gold regained its ground afterwards.

Gold will eventually peak on a parabolic spike, in which the price rises 100% to maybe 500% in a matter of months. Some way off yet.

I agree 5-10% in gold is a good allocation. Personally I prefer dividend paying stocks but like an insurance element to balance ones portfolio.

Gold is an awful long, long term investment (i.e. 40 years plus), but it goes in cycles and now its cycle is a SECULAR uptrend. It is worth holding for maybe 2-5 years longer. Perhaps 10 years.
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bar a pension fund or a house , i would have no wish to invest in anything for forty years , i would not regard a 50% fall in the price of gold as substantial , i would regard that as a collapse and while gold fell back in 2008 but subsequently rebounded to new highs , that was during a time of the worst financial and economic crisis in eighty years , its unlikely we would see such a perfect storm in the next few years were gold to see such a correction ,irish house prices have only fallen by 50% and few would describle the trend in house prices this past four years as anything but a collapse
 
farmerette said:
bar a pension fund or a house , i would have no wish to invest in anything for forty years , i would not regard a 50% fall in the price of gold as substantial , i would regard that as a collapse and while gold fell back in 2008 but subsequently rebounded to new highs , that was during a time of the worst financial and economic crisis in eighty years , its unlikely we would see such a perfect storm in the next few years were gold to see such a correction ,irish house prices have only fallen by 50% and few would describle the trend in house prices this past four years as anything but a collapse
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The difference is property has never really fallen much in nominal terms before. Property usually crashes in real terms which the average joe cannot see his loss of wealth. As the property bubble was so large this time hence the property crash was so large and nominal falls became far more prevelent.

Gold is a commodity. Commodites are inherently more volotile than illiquid property. Hence you buy gold and expect it to swing up or down more in value than a house. This doesn't detract it as an asset class providing you go in with eyes wide open.

Gold is still half its inflation adjusted peak and you simply cannot argue against the secular commodity boom that we are 1/3 to 1/2 way through. It commenced in 2000 and for gold and all other commodities to collapse now and enter a new secular bear market would constitute the shortest secular commodity boom in history.

Bet against economic history if you so wish ;-)
 
ringledman said:
The difference is property has never really fallen much in nominal terms before. Property usually crashes in real terms which the average joe cannot see his lose of wealth. As the property bubble was so large this time hence the property crash was so large and nominal falls became far more prevelent.

Gold is a commodity. Commodites are inherently more volotile than illiquid property. Hence you buy gold and expect it to swing up or down more in value than a house. This doesn't detract it as an asset class providing you go in with eyes wide open.

Gold is still half its inflation adjusted peak and you simply cannot argue against the secular commodity boom that we are 1/3 to 1/2 way through. It commenced in 2000 and for gold and all other commodities to collapse now and enter a new secular bear market would constitute the shortest secular commodity boom in history.

Bet against economic history if you so wish ;-)
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if the nature of commoditiys is volatility , then i fail to see how it makes sense to view gold as a forty year investment as you suggest earlier , gold could be worth more at year five than year twenty , as would have been the case had someone bought gold in 1976 , surely its a short term investment and one you need to watch carefully in order to make money , the same can hardly be said for stock investing , shares bought thirty years ago are in all likleyhood worth an awfull lot more today

as for the commodity boom , im not sure all commodities follow the same trend , different commoditys respond to different factors , food was on the floor two year ago , as was oil , gold at this time was soaring , gold was responding to the panic over equity and financial markets , food was responding ( negativley ) to the global rescession and to a huge increase in grain and butter and cheese stocks , grain has responded ( possitivley ) to a series of weather issues in some of the worlds main grain producing areas , droughts in europe and russia last summer, floods in australia now , my point is that while both food and gold come under the label commodities , just because commodities like grain and dairy products are now booming , doesnt mean gold should
 
Re-read my posts.

I said gold was an awful long term investment. It produces no income and its cost you own it.

However it goes through cycles and is currently in a bull maket. The point of bull markets is to ride them.

At some point the gold bull will turn into a bubble and it will be time to get off. I dont doubt timing the top will be very difficult. It will probably be when everyone is talking about it. Gold stores are selling and not buying ones gold.

Likewise over the long term I dont disagree that dividend stocks are the very best long term investment.
 
horusd said:
Not sure I agree with you ringledman ( tho I know where your coming from).Whether you call the current high value a bubble or not is a judgement call. Gold is usually a safety bet in troubled waters ( like now). It has little inherent value apart from scarcity and perception of value - and that can change. You can't make many useful things with it, it could hardly be decribed as an essential material, like copper or aluminium for example. You can's eat it either.
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You can't eat fiat money or bonds or stocks either, so that really isn't an argument ;-)
As for the safety net argument, that is certainly what it is now perceived to be or argued to be. But you have to remember that gold is money not just some commodity; it was money for far longer than paper has been money. And perception of value comes into play with literally everything, whether it is stocks, real estate or wine. The thing to remember is that the perception of value in gold has been around for millenia, and independently developed in cultures that never had contact. Of course it could happen that humans collectively change their minds about this, but I wouldn't bet on it.

farmerette said:
i cant think of a single factor which would contribute to a tenth successive year for growth in the price of gold
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How about the most obvious reason in the printing of money by all central banks around the world?
I would argue that the perception of a US recovery is premature and very optimistic given the fiscal and employment state of the country; and the dollar has been falling again.

farmerette said:
bar a pension fund or a house , i would have no wish to invest in anything for forty years , i would not regard a 50% fall in the price of gold as substantial , i would regard that as a collapse and while gold fell back in 2008 but subsequently rebounded to new highs , that was during a time of the worst financial and economic crisis in eighty years , its unlikely we would see such a perfect storm in the next few years were gold to see such a correction ,irish house prices have only fallen by 50% and few would describle the trend in house prices this past four years as anything but a collapse
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Your points are very good, but they assume that the crisis is actually over, rather than kicked down the road. Money printing and sovereign deficit spending and debts will by some accounts cause the next crisis which will make the credit bubble look like a walk in the park. I believe it is a matter of when not if, but I couldn't tell you whether it will be this year or next, or a couple of years from now. The longer away it is the better, as that will give me more time to buy gold, hopefully at a lot lower price.

farmerette said:
if the nature of commoditiys is volatility , then i fail to see how it makes sense to view gold as a forty year investment as you suggest earlier , gold could be worth more at year five than year twenty , as would have been the case had someone bought gold in 1976 , surely its a short term investment and one you need to watch carefully in order to make money , the same can hardly be said for stock investing , shares bought thirty years ago are in all likleyhood worth an awfull lot more today
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You are not exactly comparing like with like here. You are taking one asset just before a bubble and the other merely at the same time, which is cherry picking data. A more adequate comparison would be stocks from the mid to late 90s to now, where you will see that especially the NASDAQ hasn't even remotely recovered after 10 years. If you look at a historic chart of the DOW, you will see that it took about 25 years for the index to nominally recover after the 1929 bubble and crash.
 
Some simple figures to illustrate the size of the US National Debt... which has increased hugely since they left the gold standard.


Their federal reserve debt is 14 trillion... that's 14,000 billion, or 14,000,000 million.


All of the gold ever mined, throughout antiquity is 165,000 tonnnes, or 165,000,000 kilos.

The US gold reserve is approx 9,000 tonnes, or 9,000,000 kilos.

Price of gold, Jan 2011, approx 42,000 dollars per kilo.



So if the US wanted to go back onto a gold standard what price would gold have to be?, and how does that compare to it's current price?


Well, if the US had all the gold ever mined (they don't).. then the gold price would have to be about 85,000 dollars, about twice todays prices.


BUT... the US only have about 5% of the gold ever mined... so gold would now have to increase in value, to 1.5 million per kilo, just for the US to back their Federal Reserve debt with gold.



That would mean that gold would have to increase in price by as much as forty times from todays prices... to 1.5 million dollars per kilo.



So is the dollar worth anything? Is gold overpriced at todays prices?


(Keep in mind that at one stage it was possible to redeem dollars into gold, simply by walking into a bank.. clearly that can't be done today)
 
JoeBallantin said:
Some simple figures to illustrate the size of the US National Debt... which has increased hugely since they left the gold standard.


Their federal reserve debt is 14 trillion... that's 14,000 billion, or 14,000,000 million.


All of the gold ever mined, throughout antiquity is 165,000 tonnnes, or 165,000,000 kilos.

The US gold reserve is approx 9,000 tonnes, or 9,000,000 kilos.

Price of gold, Jan 2011, approx 42,000 dollars per kilo.



So if the US wanted to go back onto a gold standard what price would gold have to be?, and how does that compare to it's current price?


Well, if the US had all the gold ever mined (they don't).. then the gold price would have to be about 85,000 dollars, about twice todays prices.


BUT... the US only have about 5% of the gold ever mined... so gold would now have to increase in value, to 1.5 million per kilo, just for the US to back their Federal Reserve debt with gold.



That would mean that gold would have to increase in price by as much as forty times from todays prices... to 1.5 million dollars per kilo.



So is the dollar worth anything? Is gold overpriced at todays prices?


(Keep in mind that at one stage it was possible to redeem dollars into gold, simply by walking into a bank.. clearly that can't be done today)
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so is gold a good buy or not ??????
 
It depends on who you ask. This thread is a good example of both viewpoints. I would say yes, gold is good buy... it can hardly be worse than depositing in zombie banks, or zombie currencies. (There are non-zombie currencies, and many would say the dollar is fine too, but I don't know what they could be basing that on, .. certainly not on US ability to repay))

Governments say that their currencies are sound, but are they?

Can the US ever pay back the 14 trillion? (China are owed a trillion, or approx 1,000 billion.. I wonder who is owed the rest?)

If the dollar or the Euro is to fail what will happen? Will the Euro be able to get out of the mess it's currently in?

Many people say that gold could hit 5,000 dollars an Ounce, from approx 1,250 today, or 300 a few years ago.


No-one can predict the future, so who knows. I just know that most currencies are devaluing. (The dollar has depreciated by 97% or so in the last 100 years.. this is why prices of houses etc rise... but have they risen when priced in ounces of gold?)


It's said that an Ounce of gold (value 1,000 Euros), could buy you three good suits in biblical times.. same as today. But the currency of ancient Iran or where-ever is likely worthless.

Every fiat currency in history has failed eventually. (With some potential exceptions perhaps)
 
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