# Gold and/or silver ETFs



## blass (6 Oct 2009)

Hi,

I would be very interested in investing ina gold or silver ETF rather than have to shell out a min of EUR7k with GOLD.IE etc (nothing wrong with GOLD.IE it seems a reputable and professional company but due to personal needs I want a lower cost entry point).
My requirements are that my funds be easily convertable to cash within a reasonable time frame if and when needed.
I am conscious of the underlying cost of course.
Do any gold or silver etfs exist on the ISEQ that are competitivley priced or is it a case that we are expected to pay over the odds like with Index funds making these funds too expensive in relation to potential returns?


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## Markjbloggs (6 Oct 2009)

Why ?

http://online.wsj.com/article/SB125460546960362069.html


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## blass (6 Oct 2009)

Interesting piece. Thanks for that.
Still, I have a desire to at least have a small exposure just in case due to say a black swan event gold rallies dramatically.


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## Chris (6 Oct 2009)

Markjbloggs said:


> Why ?
> 
> http://online.wsj.com/article/SB125460546960362069.html


I don't have time to point out all the fallacies of this article, but here are a few:
1) "Gold, like other commodities, is a notoriously volatile and fickle investment." And stock and bond markets aren't?
2) "Gold's long-term track record isn't great..." Wrong, wrong, wrong, unless you only bought gold in the 80s at $840 (which it only held for about a day).
3) "What drives gold prices? It's an alchemist's mixture of fundamentals and fantasy. Gold certainly has industrial uses and it's a hot item for purchasers of jewelry, especially in India." Gold's main use is as an investment, currency backing, and for hedging purposes. As for jewelry, both India's and China's demand for gold for jewelry is increasing




blass said:


> Interesting piece. Thanks for that.
> Still, I have a desire to at least have a small exposure just in case due to say a black swan event gold rallies dramatically.



The black swan event has already happened: massive amounts of money printing, China's accumulation of gold, increased calls for a new reserve currency.
If you are only looking at smaller amounts of investments in gold and silver, why not buy the real thing at www.goldmoney.com
I have no affiliation to them except for being a customer.


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## blass (6 Oct 2009)

Always good to consider both sides of the fence.
Will look into it further. Thanks.


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## blass (6 Oct 2009)

HI Chris,

After looking the GOLDMONEY site i'm pleased that they don't ahve a minimum order amount.
So i'm curious to hear what they are like to deal with, any difficulties when dealing with them etc??


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## Markjbloggs (6 Oct 2009)

Chris,

have a look at this chart of gold price since the mid-70's.  Apart from the late 70's and now, gold has been pretty flat.  I don't have a similar chart of the stock markets to hand, but I can be reasonably sure they have outperformed gold by orders of magnitude despite their volatility.


http://goldprice.org/30-year-gold-price-history.html


Gold is for magpies and is a terrible investment, silver is more of an industrial metal now than a precious metal.

M




Chris said:


> I don't have time to point out all the fallacies of this article, but here are a few:
> 1) "Gold, like other commodities, is a notoriously volatile and fickle investment." And stock and bond markets aren't?
> 2) "Gold's long-term track record isn't great..." Wrong, wrong, wrong, unless you only bought gold in the 80s at $840 (which it only held for about a day).
> 3) "What drives gold prices? It's an alchemist's mixture of fundamentals and fantasy. Gold certainly has industrial uses and it's a hot item for purchasers of jewelry, especially in India." Gold's main use is as an investment, currency backing, and for hedging purposes. As for jewelry, both India's and China's demand for gold for jewelry is increasing
> ...


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## Chris (6 Oct 2009)

Markjbloggs said:


> Chris,
> 
> have a look at this chart of gold price since the mid-70's.  Apart from the late 70's and now, gold has been pretty flat.  I don't have a similar chart of the stock markets to hand, but I can be reasonably sure they have outperformed gold by orders of magnitude despite their volatility.
> 
> ...



Just like stocks, bonds and other commodities, gold is not always the best investment. During the current crisis it has been one of the best investments available.
Looking at the chart you posted you can make following assessment:
1) In 1977 you would have bought 1 ounce of gold for $100 and it would now be worth about $1000
2) In 1977 the S&P was trading at about 100 points, at the moment it's trading at just over a 1000 points ()

Gold is NOT a terrible investment, especially when considering the present inflationary activities of central banks, but the level of exposure is dependent on your situation. 
Gold should also not be blindly compared to other commodities, as it is not just a commodity but also money, which is why it is traded on the currency desks of the various exchanges and held as reserves by central banks.


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## ringledman (6 Oct 2009)

Commodity cycles run in 25-30 year periods. 25-30 years down and then 25-30 years up. That's the LONG TERM SECULAR story of commodities. 

Why? Because as prices peak and fall no one invests in mines, oil rigs etc it creates the supply glut for the next boom. 

During the mid 80's to now no one has really invested in increasing the supply of commodities out of the ground in order to meet demand. 

Even when demand fell over the last year, the supply fell four fold. Hence the next CYCLICAL uptrend in the LONG TERM SECULAR trend that commenced in the year 2000 is occuring. 

Siver is going to hit pluto at somepoint. It is like an elastic band that follows the price of gold but swings far more widely. It hit €50/ounce in the early 80s and is now only at €17/ounce. There will be a massive rise sometime within the next 10 years. 

Gold and Silver are money. 

Fiat paper supply increases at 15-30% per annum from the printing presses of the crooked central banks.

Gold and Silver supply increases through mining at 1-2% per annum.

Work the rest out. 

Gold was a crap thing to own during the 80's and 90's as the supply of mines had increased from the 70s boom. Now things have reversed. We are halfway through this commodity secular supercycle on a historical basis of how long commodity booms last. 

On the basis of the growth in China and India forecast this could be the longest, largest commodity boom in history. To not own Gold or Silver in a well balanced portfolio of assets is crazy in my eyes.


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## ringledman (6 Oct 2009)

> Apart from the late 70's and now, gold has been pretty flat. I don't have a similar chart of the stock markets to hand, but I can be reasonably sure they have outperformed gold by orders of magnitude despite their volatility.


 
You measure any asset in terms of gold. This makes nominal values real - 

[broken link removed]

http://www.marketoracle.co.uk/images/2009/Feb/gold-ratio-image002.gif

I predict gold at $5,000/ounce and the dow at 5,000 or so sometime in the future. i.e. a 1:1 ratio. 

Or maybe gold at $3,000/ounce and the dow at 3,000 in a bearish case. Or maybe gold at $10,000/ounce and the dow at 10,000. Even $20,000/ounce and 20,000 on the dow.

It doesn't really matter on the level, all that history shows is that after such recession-depressions, gold peaks at near on 1:1 to the dow. Hence gold will outperform the 'average' markets.

Gold will continue to perform better than the 'average' stockmarkets until it tops out in 5-10 years. Hold on for the volatile ride and sell once gold appears regularly on the front of the broadsheets.


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## Markjbloggs (7 Oct 2009)

ringledman said:


> Siver is going to hit pluto at somepoint. It is like an elastic band that follows the price of gold but swings far more widely. It hit €50/ounce in the early 80s and is now only at €17/ounce. There will be a massive rise sometime within the next 10 years.
> .



You really should disclose that the ONLY reason silver hit $50 in the 80's was because the market was cornered by the Hunt brothers from Texas.  Once that artifical price support mechanism was broken and the normal laws of supply and demand were restored, silver immediatley fell to <$10 (I may be wrong on the exact price, memory ain't what it used to be).


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## Chris (7 Oct 2009)

blass said:


> HI Chris,
> 
> After looking the GOLDMONEY site i'm pleased that they don't ahve a minimum order amount.
> So i'm curious to hear what they are like to deal with, any difficulties when dealing with them etc??



I found the process of setting up an account pretty straight forward. One thing to keep in mind is that when you transfer €s to them, their bank will charge for receiving €s. I think it was about €6-7. Probably best to check with your bank how much it would cost to send £s.
After that you just choose how much gold you want to buy and where you want it stored, i.e. London or Zurich.
Charges are decent at 0.1 gold gram per month, at current prices that's just under €2. Haven't had any problem with them at all, but I haven't tried their facility to change from gold to silver or cash; I imagine it is as straightforward as the other way round.


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## ringledman (7 Oct 2009)

Markjbloggs said:


> You really should disclose that the ONLY reason silver hit $50 in the 80's was because the market was cornered by the Hunt brothers from Texas. Once that artifical price support mechanism was broken and the normal laws of supply and demand were restored, silver immediatley fell to <$10 (I may be wrong on the exact price, memory ain't what it used to be).


 
There will be speculators at the end of any boom. long may it continue. As long as I am invested within the secular bull market before they arrive then great. 

What is interesting is that after the severe cyclical downturn last year in commodities, all the major commodities bottomed at levels higher than they did in any previous downturn. A classic bull sign that the secular long term boom is continuing.


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## Markjbloggs (8 Oct 2009)

ringledman said:


> There will be speculators at the end of any boom. long may it continue. As long as I am invested within the secular bull market before they arrive then great.
> 
> What is interesting is that after the severe cyclical downturn last year in commodities, all the major commodities bottomed at levels higher than they did in any previous downturn. A classic bull sign that the secular long term boom is continuing.



Fair enough - big problem with that is the timing of your sell - the drop-off in gold and silver prices after their peak is very sharp and severe.


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## ringledman (8 Oct 2009)

Markjbloggs said:


> Fair enough - big problem with that is the timing of your sell - the drop-off in gold and silver prices after their peak is very sharp and severe.


 
Yes I agree, very hard to time. 

I hope to get out early and take the profits even if before the peak if required. 

I guess the peak will be defined as gold making the front pages and everyone you know invested in it, or trying to invest but with limited opportunities as everyone else clambers aboard the mania. 

I believe gold stocks (particularly smaller explorers) continued to rise after the gold market crashed in the early 80s.

To date, I do not meet many colleagues who talk about gold in the way property was talked about in the final stages of the boom.

Granted more people mention gold, but how many invest in it? For these reasons I believe we are mid way through the boom, with most of the upside still to come sometime in the next 5-10 years. 

Gold will probably fall in the near term IMO due to the huge number of people long the metal this past few weeks, and then rise to the $1,300 or so region in a few months time.


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## Marc (11 Oct 2009)

[broken link removed]
To address some of the points raised on this thread, a detailed analysis of the spot price of gold compared to the S&P 500 since Jan 1971 can be found [broken link removed]

We are often asked by clients to make some sort of a prediction about the future price of stocks, property or other assets. However, this approach – essentially attempting to guess the future – is fundamentally flawed.


 Advisers, wealth managers and stockbrokers should not be paid for trying to predict the future, since the future is uncertain and random events can alter markets in unpredictable ways. The antidote to this uncertainty is diversification not crystal ball gazing.


To illustrate the enormous difficulty of the task of attempting to guess the best place to invest next year, simply ask yourself this: what was the best place to invest your money last year? It’s difficult isn’t it? You would probably need to look it up.


One of the best places to invest in 2008 was Long Term Government Bonds, up 17.51% in 2008, but they were one of the worst places to invest in 2006 and 2007 down 8.73% and 6.67% respectively. Attempting to move in and out of different investments, or market timing, is fraught with difficulty.  You need to be correct in your decisions more than once, when to get in, when to get out and when to get back in again. In a study in the US of 15,000 predictions over a 12 year period from 237 Market Newsletters, there was no evidence of any skill in the predictions made.  Examples of predictions that were correct are just as likely to be lucky as skilfull and distinguishing luck from skill is extremely difficult over short time periods.


Attempting to identify investment managers with stock picking skill is slightly easier – there don’t appear to be many. In a study of 2,100 stock pickers over 32 years, 99.4% of fund managers were shown not to have verifiable stock picking skill. Those managers who beat the market were fewer than the proverbial large group of monkeys with a dart and a stock sheet. Why do we see so few skilled fund managers beating the market? One reason may be that the monkeys work for bananas. 


Finally, in a study of 660 hiring and firing decisions made by investment consultants selecting investment fund managers, the fired managers beat the hired managers who replaced them. 


A better approach to the conventional wisdom that is typically sold around the world is to consider the role of any investment within a wider, diversified portfolio in relation to how one might expect it to perform, on average, based on a detailed understanding of how it has performed in the past.


Now, we have to be careful to be clear on one thing here. We are not suggesting that an investor looks at the last 2 or 3 years and attempts to draw any meaningful inferences. For example, if we look at the performance of the stock market as measured by the MSCI World Index over say the last 3 years the average annual return was about -7.32%pa. One might conclude, based on this time period, that an investment in the stock market is a bad investment. However, it takes about 30 or 40 years of data to prove statistically that stocks outperform cash over the long run.  


Over the period Jan 1971 to end September 2009 in US$ the average annual return from holding Gold has been 8.70%pa compared to 5.71%pa for cash as measured by one month Treasury Bills. The stock market as measured by the S&P 500 returned an average annual return of 9.92%pa. Over the long term, Gold has done a good job of preserving wealth.


So, when considering if one should buy gold at around $1050 per ounce, if one is buying gold for the reason of financial insurance or as a hedge against risk, then the price paid today is not so relevant to the decision to purchase. By the same reason that I don’t cancel my house insurance just because my premium has increased since last year. I don’t buy house insurance because I hope my house catches fire I buy house insurance in case it does.


Gold is a form of financial insurance within a portfolio. It is a refuge from risk and should therefore be used within a portfolio to reduce exposure to other forms of systemic or market-wide risk, such as banks failing that affect markets from time to time. However, because bad news events like September 11th 2001 are so random in nature, the smart way to think about any investment decision is not to think about the price paid today, since the current price reflects all of the opinions of all of the buyers and sellers around the world. Investors should not be trying to out-guess the market but rather acknowledge that the news will continue to break in the future in random ways which will move future prices of all investments in random and unpredictable ways. Diversification is the antidote to uncertainty.


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