Jump to content

Gold Chart Gone Hyperbolic


Parsad
 Share

Recommended Posts

  • Replies 149
  • Created
  • Last Reply

Top Posters In This Topic

Take a look at the DXY chart and ask yourself if you see support anytime soon.    I wonder how long gold can keep it up as well, but I think pretty much the only thing that can slow it down is strength in the USD.

 

For someone who wants to short gold, going long UUP could be a way to play that gold/USD correlation.    It may not be perfect, but at least you get the known potential downside of a long position vs. the unlimited downside of a short.

 

 

Link to comment
Share on other sites

Parsad: Do you see any "value" in continuing to hold a 1-2% physical gold and silver position as "insurance"? A relative keeps asking me and I keep going back and forth (they have held it for several decades). I'm curious about your opinion (and anyone else's). Thx

Link to comment
Share on other sites

It all depends what you want to insure against.  I have a small amount of physical gold in case I ever experience that unlikely scenario where my family was forced to become refugees.  I really don't ever expect that to happen to me, but it does happen in this world from time to time, and gold has proven itself through history to be the best way to transport wealth should that happen. 

Link to comment
Share on other sites

Parsad: Do you see any "value" in continuing to hold a 1-2% physical gold and silver position as "insurance"? A relative keeps asking me and I keep going back and forth (they have held it for several decades). I'm curious about your opinion (and anyone else's). Thx

 

What kind of insurance are you wanting? Like, end of the world insurance? Inflation insurance? Or insurance against people coming to their senses?

Link to comment
Share on other sites

These types of bubbles correct quickly when they do eventually correct.  I'm getting concerned...but then I've been concerned for two years!   ;D  Cheers!

 

A friend of mine asked me a while back if I thought gold was over valued - I said yes...

 

 

 

 

 

.... and it went up about 400/ounce since then ;D

Link to comment
Share on other sites

Guest Hester

Long the Gold miners or any stock holding gold and short the physical (through GLD) is an interesting trade. During market turmoil, the two usually decouple, as people sell stocks and buy gold.

Link to comment
Share on other sites

ragnarisapirate: Yes, I'm talking end of the world insurance. (No, to the other two.) Does "end the world insurance" have any price sensitivity?  :D Gundlach commented a few months ago that he prefers cash and gems due to portability. (I could make a joke here, but I'll resist)

Link to comment
Share on other sites

ragnarisapirate: Yes, I'm talking end of the world insurance. (No, to the other two.) Does "end the world insurance" have any price sensitivity?  :D Gundlach commented a few months ago that he prefers cash and gems due to portability. (I could make a joke here, but I'll resist)

 

If the end of the world happens, then you wont be able to do anything with paper that says you own gold. You should own physical stuff that you keep in your house.

 

Though, if the end of the world happens, I'd rather have a small cache of guns and ammo... Even if you are a pacifist (which, despite the name, I would liken myself to) then, you could trade them off for gold or whatever you want.

 

Plus, if the end of the world doesn't happen, then, with the guns and ammo, you get to have the pleasure of occasionally going to the farm or the range and shooting through a few hundred dollars worth of ammo. ;) A lot more utility than the gold!

Link to comment
Share on other sites

You never no when gold will prove useful. As I recall James Bond pulled out a belt of 50 kruggerands to bribe a Spectre agent in a train compartment and used them to whack his opponent, disabling him sufficiently so he could push him out the window.

 

But, given that James Bond never went anywhere without his Walther PPK...

Link to comment
Share on other sites

I don't see how gold can be a bubble when all the gold ever mined represents just 0.6% of Total Financial Assets ($160 Trillion). If gold declines from 1750 to 750, it won't affect anyone here. This is not like the mortgage bubble which affected almost $60 Trillion in financial assets. Morever, gold supply is only 2,500 tonnes per year, while jewelry demand is 2,200 tonnes, Semiconductors is 200 tonnes (every mobile phone requires about $1 worth of gold) and Dentistry is 150 tonnes per annum. So you already have an imbalance of 100 tonnes right there.

 

The rest of demand falls into investment demand which historically was depressed due to central bank sales, the central banks have now decided to turn around and purchase gold, and all the while mine supply is extremely inelastic (in the last 15 years, exploration budgets have gone up 10x while gold discoveries have declined by 90%). We are mining lower grade gold at deeper depths and higher cash costs than ever in the history of mining.

 

I think the only reason some people are worried about the price of gold is that under their economic philosophy it shouldn't be worth anything and they are bothered by it's rise, its kind of like being jealous of the neighbours lawn. Why are people so obsessed with the price of gold? The market cap of all the gold companies combined is less than Apple, this won't affect the economy in any way shape or form if gold miners collapse or gold bullion drops in price. It's just bothers investors who don't understand it and have missed the single best performing asset this decade.

 

 

 

 

Link to comment
Share on other sites

Parsad: Do you see any "value" in continuing to hold a 1-2% physical gold and silver position as "insurance"? A relative keeps asking me and I keep going back and forth (they have held it for several decades). I'm curious about your opinion (and anyone else's). Thx

 

I think older generations have more of an attachment...either culturally or historically-based.  They held it for different reasons.  70 years ago, people thought the Nazi's and Japanese were going to take over North America.  50 years ago, they thought the Soviets were going to take over North America.  10 years ago, they thought Al Qaeda would detonate a nuclear bomb in North America.  All of those things were possibilities but never came to fruition.  Today they think that the U.S. will go bankrupt and the European union will dissolve.  Both are possibilities, but I'm not sure either will come to fruition.  Certainly not the former, and the latter is more likely to be the removal of a couple of countries in the worst case scenario and the addition of others.  The Euro will exist, but just not in the form we've necessarily known.  

 

I'm not a fan of gold in the slightest.  Buffett said that all the gold in the world ever found amounts to a cube 65ft by 65ft by 65ft.  It would be worth $7T!  But for that same amount of money, you could buy ALL of the farmland in the U.S., 23 Exxon Mobiles and still have a trillion dollars left to do with what you want.  Which is the smarter investment?

 

I owned gold in my safety deposit box about 7 years ago when it was $300 oz.  I sold a long time ago at $700-800 oz on average.  That'a all I think gold is worth right now based on supply and demand from utilization in industry and normal jewellry demand.  The rest is speculation and fear!  So I would not be surprised to see a 50% correction in gold at some point.  

 

I have no way to really value it outside of that supply and demand.  And I don't invest in things based on what other people may be willing to pay.  So I will not touch it, and I warn everybody I know that they should be careful.  I have looked stupid for a couple of years, and more and more people (family members in particular) are reminding me how wrong I have been...so I think we are getting pretty close to the top.  Then again, I thought rap music was a fad, so you may be seeking advice from a fool!   ;D  Cheers!

Link to comment
Share on other sites

I don't see how gold can be a bubble when all the gold ever mined represents just 0.6% of Total Financial Assets ($160 Trillion). If gold declines from 1750 to 750, it won't affect anyone here. This is not like the mortgage bubble which affected almost $60 Trillion in financial assets. Morever, gold supply is only 2,500 tonnes per year, while jewelry demand is 2,200 tonnes, Semiconductors is 200 tonnes (every mobile phone requires about $1 worth of gold) and Dentistry is 150 tonnes per annum. So you already have an imbalance of 100 tonnes right there.

 

The rest of demand falls into investment demand which historically was depressed due to central bank sales, the central banks have now decided to turn around and purchase gold, and all the while mine supply is extremely inelastic (in the last 15 years, exploration budgets have gone up 10x while gold discoveries have declined by 90%). We are mining lower grade gold at deeper depths and higher cash costs than ever in the history of mining.

 

I think the only reason some people are worried about the price of gold is that under their economic philosophy it shouldn't be worth anything and they are bothered by it's rise, its kind of like being jealous of the neighbours lawn. Why are people so obsessed with the price of gold? The market cap of all the gold companies combined is less than Apple, this won't affect the economy in any way shape or form if gold miners collapse or gold bullion drops in price. It's just bothers investors who don't understand it and have missed the single best performing asset this decade.

 

 

 

 

 

Well,... I personally don't own any gold holdings, so from a layman point of view I would want to look on some visualized facts (like equity investors, i.e. Buffett or Watsa would do for the stock market with the ratio of stock market capitalization vs Nominal GDP in the U.S. -- Prem always provided these charts/data from Ned David Research in the Fairfax AGM slide presentations).  ::)

 

 

hmm,... i was just searching on google images some comparable stuff for gold:

 

Gold Inflation Adjusted

 

Gold reaches its inflation adjusted high in Asian trading as Chinese buyers step in

2011-08-0x

http://traderdannorcini.blogspot.com/2011/08/gold-reaches-its-inflation-adjusted.html

 

http://4.bp.blogspot.com/-atMjsqkF8Tc/TkDaubkgK_I/AAAAAAAAAkI/7rB7fQc7A0I/s1600/Inflation+adjusted+gold+8-9-2011.PNG

 

-------

 

older chart

http://static.seekingalpha.com/uploads/2008/1/7/cngold106big.gif

 

-------

 

http://pragcap.com/wp-content/uploads/2010/10/ann.jpg

 

-------

 

http://static.safehaven.com/authors/casey/20558_d2.png

 

-------

 

200 Year Dow/Gold Ratio:

 

http://historysquared.com/wp-content/uploads/2011/05/clip_image0022.png

 

 

--------

 

http://4.bp.blogspot.com/_F9F6y3DEr0E/Swf8VbqduzI/AAAAAAAAERE/JVeHrVkXtZY/s1600/Dow+Gold+Ratio+112009.jpg

 

 

--------

 

Dow Jones Index vs Dow/Gold Ratio:

 

http://static.seekingalpha.com/uploads/2009/6/6/426795-124430753746441-Faisal-Humayun.JPG

Link to comment
Share on other sites

Parsad: Do you see any "value" in continuing to hold a 1-2% physical gold and silver position as "insurance"? A relative keeps asking me and I keep going back and forth (they have held it for several decades). I'm curious about your opinion (and anyone else's). Thx

I'm not a fan of gold in the slightest.  Buffett said that all the gold in the world ever found amounts to a cube 65ft by 65ft by 65ft.  It would be worth $7T!  But for that same amount of money, you could buy ALL of the farmland in the U.S., 23 Exxon Mobiles and still have a trillion dollars left to do with what you want.  Which is the smarter investment?

 

I owned gold in my safety deposit box about 7 years ago when it was $300 oz.  I sold a long time ago at $700-800 oz on average.  That'a all I think gold is worth right now based on supply and demand from utilization in industry and normal jewellry demand.  The rest is speculation and fear!  So I would not be surprised to see a 50% correction in gold at some point.  

 

I have no way to really value it outside of that supply and demand.  And I don't invest in things based on what other people may be willing to pay.  So I will not touch it, and I warn everybody I know that they should be careful.  I have looked stupid for a couple of years, and more and more people (family members in particular) are reminding me how wrong I have been...so I think we are getting pretty close to the top.  Then again, I thought rap music was a fad, so you may be seeking advice from a fool!   ;D  Cheers!

Sanjeev - well said.

I owned gold when the first ETF came out and sold at a 50% gain - I thought I was smart!!!!  Ever since, I have been scratching my head seeing the prices  ::).  No regrets for all the same reasons Sanjeev said.

Unwittingly I added about a quarter kilo of gold to my family portfolio when I got married - all of it in the form of wife's jewellery.  (I was marrying up  ;D )

A constant pet argument I have with my wife is that we are paying about USD 15 a year to just keep it in the bank safe, while stock holdings (except Berkshire) pay dividends, real estate generates rent.  The argument has not been that effective due to the price gains she has in her part of the portfolio.  I just point out that it is all moot since she will never part with all that jewelery even if a gm of gold hit a million.  The argument usually ends there.  (We then kiss and make up, if any one is curious about the state of marriage.)

As a practical matter, she is not adding to the holding.  (Didn't I say I married up?)

 

Short of all this anecdote is that we hold some gold - just like most middle and upper class households in India.  I am ok with it since it is jewelery (durable consumer good).

 

Link to comment
Share on other sites

Two Comments

 

The graph that goes back to the 1400's is completely inaccurate, I have seen those graphs floating around and they are totally wrong due to the fact that the world was on some type of a gold standard up until 1971, making it irrelevant what the price of gold was UNTIL 1971. The only time the price of gold matters is when our medium of exchange derives its value from nothing, and we need to measure its pace of erosion by comparing it to gold.

 

Which brings me to the next point, the infamous Buffet Cube point that Sanjeev brought up. This point too is so inaccurate and was crafted tongue in cheek, by buffet who knows better. In an economy we must use a medium of exchange (currency). Now either you believe that the value of that currency should be centrally controlled and erode over time (Keynes/Johns Law) or you believe that currency should have intrinsic value and retain that value over time. History has proven, unequivocally that centrally controlled fiat currencies always erode in value and never work over time, relating to Johns Law I suggest the book: Popular Delusions and the Madness of Crowds, to learn more about the kind of bs John Law was up to :)

 

Gold is money and is a medium of exchange that has been used for 5,000 years. To try and say that if you add up all the gold in the world it would fit into an 18 meter block and it just sits there is misleading. As the alternative is to take all the fiat money in the world, sure it would probably fit into a few thousand Olympic sized swimming pools but it too wouldn't do anything as it's just paper. If humans had a choice of what they wanted to use, when buying or selling Exxon Mobile, or when selling goods or services, they would naturally choose Gold since it's so scarce.

 

The Value of Exxon Mobile or Walmart have nothing to do with a cube of gold. The cube of gold is the medium of exchange, used to value the world's financial assets, and right now 99.4% of the world is NOT using that cube, the 0.6% that is using that cube are making money not because the cube is worth more, but rather the currencies of the world that are being used in commerce are worth less.

 

For Buffet, it makes perfect sense to try and distort the value of gold, as he is operating within a fiat money world, that he believes down to his bones will forever function this way. He has assembled a portfolio of businesses that are the first to benefit from any increase in the money supply, but he has also demonstrated as a young investor his understanding of the importance of demonetization from precious metals and has several times in his career, made intelligent investments based on that theme. But quite frankly, he has gamed the fiat money system, so why the heck would he badmouth it?

 

In a fiat money system, the equivalent to gold are the businesses that are so rare and have such a strong market position, with durable competitive advantages and strong moats. Buffet has already accumulated most of those businesses.

 

The investors that do not own a collection of  70+ world class businesses or can compound their equity at 20%+ per annum are running an uphill battle as this is really a zero sum game. Over time, the value of fiat money will erode, when measured against the value of goods/services/ and finite commodities. 

 

Link to comment
Share on other sites

To the question of how to short gold there are options on GLD and inverse etf,s which will get you a decent return if you are right on your thesis. I shorted gold last week and closed it out at a small loss yesterday. The price of Gold in US dollars has only been higher on an inflation adjusted basis for a couple of months in my life-time. The ONLY reason to own gold at any time is as a hedge against disaster and a trade. The Gold bugs are certain that there will be a collapse in currencies and gold will be the only safe haven ,the fear trade has pushed people into gold and the momentum players are also all over gold. It will either do the parabolic thing and  then crash or it will correct. All it will take for the price of gold to go down is producers start hedging or some country decide perhaps it is time to change gold for another asset. If by the way Ben is so silly to announce QE3 I think the parabolic thing is a distinct possibility. A bunch of money is certain that QE3 is right around the corner. I hope Ben says we are done ,it is up to fiscal policy from here on out. I find the Dow to gold chart very interesting it makes me think that the turning point in the mkt may be closer than I think. The last sideways mkt was 1968 until 1982 the bottom was in 1974 but the mkt did not really start going up until 1982. I am pretty sure that the bottom was March 2009 but perhaps we are closer to the point were we start a new bull mkt. I think one of the things that has to be in place however is a falling gold price before that point can be reached. I think I said somewhere recently that we can not have a bull mkt if the "wealth creators " keep putting their dough in lumps of shiny metal.

Link to comment
Share on other sites

You never no when gold will prove useful. As I recall James Bond pulled out a belt of 50 kruggerands to bribe a Spectre agent in a train compartment and used them to whack his opponent, disabling him sufficiently so he could push him out the window.

 

Aberhound, you made my day .... hilarious.

Link to comment
Share on other sites

Over time, the value of fiat money will erode, when measured against the value of goods/services/ and finite commodities. 

 

The flaw I see in gold is that it essentially rises in real purchasing power over time yet is meant to remain stable.

 

Observe:

fixed quantity of gold at the same time as a rising quantity of goods&services.  Doesn't this lead to the cost (priced in gold) of goods/services to fall?

 

You can't forever increase goods and services and have stable prices vs a fixed amount of gold. 

 

Anyhow, that's the flaw I see in it.  Creates deflation effectively.

 

 

Link to comment
Share on other sites

Gold is money and is a medium of exchange that has been used for 5,000 years. To try and say that if you add up all the gold in the world it would fit into an 18 meter block and it just sits there is misleading. As the alternative is to take all the fiat money in the world, sure it would probably fit into a few thousand Olympic sized swimming pools but it too wouldn't do anything as it's just paper. If humans had a choice of what they wanted to use, when buying or selling Exxon Mobile, or when selling goods or services, they would naturally choose Gold since it's so scarce.

 

You're assuming that gold has some sort of utility as a currency because it has been used as such historically.  If the world were out of water, then would water not have the same utility as currency?  Could you not trade water for virtually every other necessity?  

 

Gold has been used as a form of currency because it is rare, is transportable, had some utility and was easily transferrable from one society to another.  I'm not sure that would be an issue in today's world.  You could as easily carry platinum, silver, diamonds, oil, uranium or other commodities that have some utility.  Electronic settlement systems make the familiarity of gold relative to foreign currencies moot.

 

The world isn't going to hell in a hand basket, so why would Buffett hold something that has little utility for him personally, when he can buy something far more productive such as farmland where crops could be generated regularly, or a business like Exxon Mobile which regularly spews a very utilitarian commodity.  

 

The argument isn't tongue in cheek.  Buffett's analogy was to portray his beliefs in as simple terms as possible.  That he would much rather own self-propagating businesses, rather than cash or gold.  Cheers!

 

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share




×
×
  • Create New...