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In 1980 gold was over $600,two years later it was at $375.
Obviously it hasn't always retained it's purchasing power, and in 1980 one could have certainly pointed at past performance and stated it's the only thing that has consistently gone up over the past few years. In fact if you had bought gold in 1980 it would have taken about 25 years to get back over $600 an ounce, it would have been an absolutely terrible investment.
Beware anything that's "hot" at the moment, and definitely never point at past returns as proof something is a good investment going forward.
gold is a currency and competitor for the dollar more then its an inflation hedge... its hard to predict where gold is going next...
we thought the dollar was headed into the toilet, then events not even on the radar blinded everyone with events in europe and the dollars growing stronger....
its always the stuff not on the radar that moves markets not what we all know and think.
I have some money that I had saved up to buy a home sitting in savings right now earning below 1% APR I don't plan to purchase a home for at least 2 more years till the job market is reasonably stable, what is the best place to put this money so it will not lose too much value? I don't want to risk my capital so stocks are out of the question.
Depends on the following:
* how much you have
* your objectives
* your constraints
* your tolerance for risk
* your psychology
* your ability to withstand significant losses
Do not go in prejudging (as you wish stocks as all uses of money (including holding it under the mattress) brings some kind of risk. Instead, try to understand what each investment offers, how it is structured, and the flows and risks it presents.
Contrary to some, I thnk basic investing is accessible to 90% of Americans, provided they are open to listening and willing to think critically. Many choose to do neither and were roadkill in the past 20 years.
if your a little savey its really very easy to create your own equity linked cd just like the insurance companies rip you off on in expenses...
you can decide how much market participation you want and guarantee your principal by buying stock options..
if markets go up you can add another per cent or 2 to your cd rate....
it really isnt the big market play the banks and insurance companies lead you to believe when they market these as stock market investments that they guarantee a certain min return or your principal on...
they are more like cd's on steroids in up markets,
i have instructions that were done when interest rates were higher so the amounts and options you would buy are no longer correct but if anyone is interested in the mechanics of how its done ill be glad to post it but please dont do anything you dont fully understand.
as an example without all the details if you had 100,000 and lets use 4% as an example of a possible cd rate .you would put 96,000 in a cd..... at 4% you will guarantee your principal... the other 4,000 would be used to buy certain options on the market indexes of your choice, even bet on oil if you wish ....those options will be worth more depending on market action.. if markets are lower your protected and get your principal back... if higher then depending how much higher you would sell your options and bolster your cd with the profits....
same way the insurance companies offer it to you but less all the fees and commissions
Last edited by mathjak107; 06-04-2010 at 04:45 AM..
gold is a currency and competitor for the dollar more then its an inflation hedge... its hard to predict where gold is going next...
we thought the dollar was headed into the toilet, then events not even on the radar blinded everyone with events in europe and the dollars growing stronger....
its always the stuff not on the radar that moves markets not what we all know and think.
No, gold is a commodity. I do not have the figures in front of me, but some 85%-90% of demand for gold is for desire, speculation, or because people and governments accord it value. As an inflation hedge, it is self-fulfilling. Our currency has not been linked to gold in any rigorous fashion since 1968!! The reason why goldbugs get some much play is that the many academics and gov't officials were building their careers at a time when the dollar was implicitly pinned down by gold. Those days are long, long gone.
As for the dollar, people seem to forget that the dollar is always defined in terms of its bilateral partner. If that partner flaters more than we do in expectation, then the dollar will strengthen vs. that partenr, even if the US has been bumbling along.
It is the then this collective poor action that gives extra buoyancy to gold.
GOLD is very different from all other commodities.. gold is a world currancy like the dollar, like the yen,like the euro.... its the 2nd reserve currancy in the world held by world banks.....
no one can go to the bank of japan and cash in a cup of oil or a barrel of hog bellies..... but a gold coin or gold bar is accepted world wide.. its the only world currancy that cant be just printed.....
in fact gold behaves unlike other commodities...just a year ago we saw all commodities plunge from their highs with oil falling from 120 to 37 bucks..
gold soared and hit new highs at the same time all commodities plunged......
now thats not to say gold dosent have other large uses.. but the fact we desire gold as jewelry is because gold is a currancy and has intrensic value as a store of value.....
diamonds are a store of value too but they arent a currancy..... i cant cash my diamonds in at the local bank..... gold is unique in being a store of value, a currency and an industrial metals.... very few except silver can make that claim and silver is more an industrial metal then a store of value/currency...
lets face it gold aint the nicest looking stuff out there to wear....
its soft, it scratches easy, its not the shinniest ,but golds desire is its store of value..... we want to wear gold for what it represents not for what it actually is....
there are some beautiful gem stones and other metals when polished i find much more attractive then gold but they lack golds desire to be owned...
other commodities are used to make goods, there is no intrinsic value in a pork belly or lump of coal its only used to make something or produce something like heat......
we want the other commodities because of the products we want to use or eat.... their is no intrinsic value to a steel bar, only the goods it makes.
the reason steel bars are bought is ultimately it will be traded to someone who has a need to make something from that steel bar..thats what keeps it trading....
with gold it can trade just based on what it represents and dosnt need an ultimate user to make something only a desire to own it...
thats why gold is very different from the pack.....
one of the reasons harry browns permanent portfolio concept warns about using any other commodity in golds place ,even oil which showed until recently a high correlaton to gold prices is because of golds function as a world currency and store of value........
about 20-25% of gold is now held by world banks and another 20 -23% roughly by investors and gold funds.......the rest is jewelry and industrial use as per 2009 figures
hope i made sense as its not an easy concept to explain.............
Last edited by mathjak107; 06-04-2010 at 06:50 AM..
GOLD is very different from all other commodities.. gold is a world currancy like the dollar, like the yen,like the euro.... its the 2nd reserve currancy in the world held by world banks.....
Not quite. It is a "currency" in the same sense that stock price is a currency used by big firms to acquire smaller firms. It is a "currency" in the same sense that diamonds are used to buy freedom during times of war. But it is not a currency in the same sense of the dollar. That central banks hold gold reserves is a separate matter altogether, owing much to the legacy of gold.
In fact holdings of gold as a percent of money supply in the world is at an all-time low. China holds US# 3 trillion in US debt b/c it pays a rate of return. Its gold reserves are 1056 metric tonnes, only 1.6% of foreign reserves.
It is really not a debatable point. Up until the first World War, the world was very different. Central banks around the world printed money based on gold holdings. Gold provided an anchor for global finance. After WW2, the world went to a dollar-based system, where the US$ was disciplined by its tie to gold. By the early 1970s and since then, the world has been in search of an alternative nominal anchor.
Quote:
Originally Posted by mathjak107
no one can go to the bank of japan and cash in a cup of oil or a barrel of hog bellies..... but a gold coin or gold bar is accepted world wide.. its the only world currancy that cant be just printed.....
OK, we expand the definition of currency. Being reasonably portable and decently verifiable, gold certainly has advantages over oil, pork bellies, etc. That should be clear and explains why gold was the choice for commodity based systems for many centuries.
And I agree that due to its legacy it is "accepted" worldwide. However, note that it trades with awful margins. Bid-ask spreads, the best indicator for liquidity, are huge suggesting what we all know: gold is not near as liquid as cash. Also, in large quantities, transaction costs are very high, including costs of security.
When you take your gold into a pawnshop, see what you get per ounce. For the $1250 to buy an ounce coin, you are lucky to get $1150 to sell at the same time. that $100 spread is huge (8%), whereas overseas, I can buy and sell US$ with far less than a 1% margin. And that spread is even worse if you add time needed to obtain physical gold.
Quote:
Originally Posted by mathjak107
in fact gold behaves unlike other commodities...just a year ago we saw all commodities plunge from their highs with oil falling from 120 to 37 bucks..
gold soared and hit new highs at the same time all commodities plunged......
I would agree. Gold is quite special. Nothing new. It has always had special access to our hearts.
But let's not get carried away. Gold hit $850/ozt on 21 Jan 1980. It did not surpass that nominal valuation until 3 Jan 2008!!! That is 28 years of dead money. It you had invested that same $850 at a measly 5% over those 28 years, your money would have grown to $3332 at which point you could have bought 3.92 ounces on 3 Jan 2008.
Moreover, gold fell from $850/ozt on 21 Jan 1980 to $256.25/ozt by 20 Feb 2001. Some rollercoaster to nowhere, no? The pqast few years are the exception rather than the rule. If anything the moveemntb of gold prices is pretty clear: buy low and sell high! Buy low, and then when fear is the worst, sell and buy underpriced interest-bearing assets.
Say you mad a terrible 5% from 1980 to 2001. And then used those proceed to buy gold at the bottom? You would have bough 9.24 ozt! Then ride to wave to $1248. Your $850? It would now be $11,552!! And of course that 5% is an ultra conservative example. You should have easily made 10%, i.e. the play above would have produced 24.4 ozt and $30,694!!
So which would you rather have? one ounce bought in 1980 at $850 an ounce, hitting $1250 this month or $30,694?
Gold is the ultimate trade!
Quote:
Originally Posted by mathjak107
now thats not to say gold dosent have other large uses.. but the fact we desire gold as jewelry is because gold is a currancy and has intrensic value as a store of value.....
lets face it gold aint the nicest looking stuff out there to wear....
its soft, it scratches easy, its not the shinniest ,but golds desire is its store of value..... we want to wear gold for what it represents not for what it actually is....
It has value becuase we give it value. That is not intrinsic, as it produces no expectations for cash flow. And as I point out, it can be a rather rotten store of value. And my numbers are only in nominal terms!! In real terms, gold offers negative real rates of return.
But, I agree, it is pretty and special.
Quote:
Originally Posted by mathjak107
there are some beautiful gem stones and other metals when polished i find much more attractive then gold but they lack golds desire to be owned...
Rare and highly graded diamonds offer better rate of return than gold.
Quote:
Originally Posted by mathjak107
one of the reasons harry browns permanent portfolio concept warns about using any other commodity in golds place ,even oil which showed until recently a high correlaton to gold prices is because of golds function as a world currency and store of value........
Within the commodity space, gold is the best to use.
Quote:
Originally Posted by mathjak107
about 20-25% of gold is now held by world banks and another 20 -23% roughly by investors and gold funds.......the rest is jewelry and industrial use as per 2009 figures
2009 Consumption Demand Numbers from the Gold Council
Jewelry 50.9%
Industrial 10.8%
Investment 38.3%
We buy gold b/c we love it, think it can go up and want it to go up. But intrinsically, it has little value.
In the long run, gold will trade at some margin to production cost...higher margins when the world's biggest central banks are printing money and politicians are screwing up our financial systems and lower margins when they are not.
Disclaimer: i really enjoy gold and I do think that our allure and psychology is predisposed to want gold for reasons that have spanned time. I will buy on dips. But at these levels? I am building a short position. Each time it gets close to $1250/ozt or goes above, I will sell short. When the bottom falls out, which it will, I will make a good chunk of change and then use that money to buy interest-bearing assets and some gold for the kids. And if gold gets to the point like in 2001, when it is "hated," i.e. close to the marginal cost of extraction, I will load up a bit, especially on numismatic gold
Being anti-gold bug does not mean I do not enjoy the yellow metal!!
think about this, if you bought gold as part of a simple portfolio position like in the permanent portfolio concept which is
25% gold
25% cash
25% total market index fund
25% long term treasuries
and if you bought it back in the 80's at the peak of 1,000 bucks, if you merely rebalanced your portfolio once a year buying more of the looser... you would have added enough gold at lower prices to have seen a 9.2% average return on the gold today vs 9.8 on the total market fund even though you bought at the peak......
rebalancing is a very important part of a good financial plan.. without rebalancing just letting an asset sit long term is a crap shoot as to whether you picked the right asset class... better to rebalance and figure that what ever you thought will be the winner wont...... time usually gives all asset classes their day in the sun eventually.
these days its easy to buy gold bullion thru low cost etf's. in fact fidelity wont even charge a commission on sum .... while etf's are not the best way to buy gold they are the easist...
i do it thru GLD
i also bought and sold gold eagles thru fidelity with not much in trading costs... i would never recommend taking them to a pawn shop or these we buy gold places.
Last edited by mathjak107; 06-04-2010 at 08:52 AM..
None of this discussion makes any sense to me. I would either spend the money on things that last or stuff it under the proverbial mattress. If you deal with the financiers you are bound to lose. That is how they make so much money for themselves.
think about this, if you bought gold as part of a simple portfolio position like in the permanent portfolio concept which is
25% gold
25% cash
25% total market index fund
25% long term treasuries
and if you bought it back in the 80's at the peak of 1,000 bucks, if you merely rebalanced your portfolio once a year buying more of the looser... you would have added enough gold at lower prices to have seen a 9.2% average return on the gold today vs 9.8 on the total market fund even though you bought at the peak......
rebalancing is a very important part of a good financial plan.. without rebalancing just letting an asset sit long term is a crap shoot as to whether you picked the right asset class... better to rebalance and figure that what ever you thought will be the winner wont...... time usually gives all asset classes their day in the sun eventually.
these days its easy to buy gold bullion thru low cost etf's. in fact fidelity wont even charge a commission on sum .... while etf's are not the best way to buy gold they are the easist...
i do it thru GLD
i also bought and sold gold eagles thru fidelity with not much in trading costs... i would never recommend taking them to a pawn shop or these we buy gold places.
Rebalancing --totally agree
Curious on ETFs.. these are simple plays on the bullion. Can you order physical gold through them as well? I am curious what they charge wrt spot. From what I have been hearing the spread right now is extremely high, close to 5%. Kitco is selling 1 oz bars at 2.0% above spot and the cheapest bullion coins (SA Kruggerands, Gold Buffalo) at 7.0% over spot. They are buying bars at 0.5% below spot and coins at spot. Pretty interesting stuff. With demand so high, they re buying at spot and selling at a decent markup. I have no idea if transactions are taxed.
The pool prices however, like an ETF, have razor thin margins, only 0.4% vs. 2.5% for bars and 7% for bullion coins.
Ayy gold...
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I don't plan to purchase a home for at least 2 more years till the job market is reasonably stable, what is the best place to put this money so it will not lose too much value? I don't want to risk my capital so stocks are out of the question.
