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Continuing with your analysis, gold did not go up every year for eleven years before 1980, either.
I acknowledge your detailed commentary; each point is true.
Nevertheless, given the huge volume of money that has poured into gold, given the large price increases (even though they do not match the Nasdaq peak or the 1979-80 experience), given the vast popularity of "gold as panacea" or "gold is a necessary part of a diversified portfolio"....I think the $1900 top will last for many years. If I am wrong, I think it will be in the context of a 1980 blowoff top that might take it much higher (temporarily) before a huge, decades-long plunge.
What does the price action of gold mining stocks in 2011 tell you? Is that the canary in the coal mine?
It's a free country, and you can bet on what you think. I believe that the price of an ounce of gold will drop from 78 shares of General Motors now to 30 shares in three to five years; and from 8.4 shares of IBM now to 3 shares. And I think the latecomers to the gold party will be making that trade down the road. Who knows? I might accomodate them and take the other side.
We had a fine economy for most of the 2000's and gold quadrupled.
We were also involved in the worst terrorist attack in our nation's history and became ensnared in two expensive wars. Gas prices skyrocketed starting in 2003.
Gold quadrupled because the American confidence of the 90's and the feelings of American exceptionalism eroded after 9/11.
if anyone thinks they are going to call the direction of anything they are kidding. you may be right for a short time but long term very wrong.
its not just gold you cant predict its all asset classes.
i have been holding gold not as a speculation but as part of a permanent strategy for 25 years.
while gold back in the 1980's had a brief mis-price at 800 an ounce that price is not a yardstick for performance any more than the nasdaq at 5000. it should have never been there and it corrected itself down to more realistic levels that matched the time period.
gold was off the radar as a serious asset class for decades.there were to many new ways to bet against the market that came out so few investors saw a use for gold.
gold today is not your fathers asset class anymore ,today gold is no different than any other asset class in the sense that it is worldy traded by more than a few speculators and it should never lay static by itself unless your speculating. rather it should be part of a stratagy and plan that includes rebalancing or buying more when down.
when used in a plan that included rebalancing if you bought your gold at the highest price ever and just rebalanced it every year with no other action the results are mind blowing.
an equal mix of equities ,gold,long term treasuries and cash would have had your gold beating the s&p 500 in average compounded annual return today if you had bought both the gold and s&p 500 on the same day gold peaked at over 800.
today your return on the gold even buying at the highest price ever,clearly a mistake in pricing would be 9.6% vs 9.1 for the s&p 500.
gold going forward ,because it is an active,seriously taken asset class will perform very different from what gold of decades ago did. its now held and traded by pension funds,mutual funds etc.
it could go up ,it could go down but long term a strategy will make it work no matter what it does. anyone who looks at the historical action of gold is looking at buggy whip sales. its not the same asset class it was. even grandma wants gold in her portfolio today. its back on the radar and that makes it as unpredictable as any other asset class today.
while its a currency and competitor for the dollar first , its driven by greed ,fear and perception too. events not even on the radar will alter your best guesses about it.
the question shouldnt be whether to make it part of your portfolio the question should be how much of it do i want to hold to fly fighter cover for my portfolio.
a portfolio that held equal amounts of equities , gold , long term treasuries and cash to fly fighter cover in 2008-2009 actually was up on the year despite the equities portion of the portfolio being down 50%.
there is a difference between being a gold bug and just plain being smart .
Last edited by mathjak107; 12-29-2011 at 05:29 AM..
What does the price action of gold mining stocks in
2011 tell you? Is that the canary in the coal mine?
Maybe.
Primarily, I think it is the effect of loss of leverage.
When gold was $400/ounce and a miner produced gold for $350 or even $400/ounce,
a rise in the price of the metal of 10% could mean a doubling of profits of the miners.
Now, with gold at $1,600, costs at $500, gold goes up 10%, profits go up 15%.
That's not much leverage for a lot more risk.
But yeah, maybe the fact that you basically broke even with the gold stocks in
2011 when just holding the metal made decent money is telling us something.
The fundamentals are that trillions in money - even Chinese money - are being
created out of thin air on an unprecedented scale. What's happening in gold
is not a mania. It is a response. If the price of oil goes up, you expect oil
company stock to rise. If the supply of currencies goes up - same for gold.
Quote:
Originally Posted by mustang84
Quote:
Originally Posted by eskercurve
Gold will only rise when the economy is in the sh*tter.
Quote:
Originally Posted by mortimer
No. Gold will rise when the money supply is expanding in an unbounded way.
We had a fine economy for most of the 2000's and gold quadrupled.
We were also involved in the worst terrorist attack in our nation's history and ...
Gold quadrupled because ... feelings of American exceptionalism eroded after 9/11.
You are giving people way too much credit for an attention span.
News-driven investing doesn't work unless it is news about the fundamentals.
My original comment still stands:
Gold will rise when the money supply is expanding in an unbounded way.
That describes the 2000's. Despite what the Republicans say today, governent spending
and the deficits made a U-Turn in 2001 and never looked back. The fact that the current
resident of the White House hasn't done anything to change that,
means that the fundamentals for gold are better than ever.
Quote:
Originally Posted by mathjak107
if anyone thinks they are going to call the direction of anything they
are kidding. you may be right for a short time but long term very wrong
I think I can call it for the long term and not the short term.
every asset has its day in the sun. some take longer to cycle around but eventually they all do.
the key is forget the short term i have found. you call some right,you call some wrong so you make some money at times and give it back and overall long term returns usually lag.
the best strategy for me has always been to always be in the game. hold all the major asset classes all the time.
when its not their day in the sun rebalancing has me buying more.
when that cycle comes around again it makes it all worth it.
that simple crappy little mix of gold,long term ,treasuries ,cash and equities has returned an average of over 9% cagr for almost 40 years .
their arent any traders i know of that have done that over that long even with their proprietary software,models and strategies..
i prefer the classic 25% in gold,equities ,cash ,and long term treasuries too.
many have tried to alter that with oil ,commodities,real estate and short term bonds instead of cash and the results have not been as reliable.
things like commodities and real estate dont always respond the way they should to an economic scenerio.
2008-2009 comes to mind when gold broke new highs and commodities and real estate fell by 50% or more.
but the bottom line is trying to predict any of this short term is a coin toss. but when used as part of a plan or strategy every asset class performs just fine when it cycles around taking all those cheap shares you rebalanced in when everyone was negative on it.
Last edited by mathjak107; 12-29-2011 at 12:34 PM..
i prefer the classic 25% in gold,equities ,cash ,and long term treasuries too.
Out of curiosity, what is your vehicle for your 25% gold portion?
Gold miners? GLD? Coins? A mix of those?
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