Gold

Recommended reading, economic debates, predictions and opinions.
schmuck
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Re: Gold

Post by schmuck » 14 Apr 2013 14:54

Another probable reason for the plunge was people in Japan lining up to sell the stuff after it had gone up as much as 25% (based on the value of the yen) in about 6 months.
Everything from geographic crosscurrents, jewelry gurus in India, preppers in the good'old USA, and starryeyed wackos makes it kind of tough to apply any rational strategy to the performance of gold. That said, it may be just as naive not to participate to some degree.

Couldn't help noticing ABX yielding over 3.5%, and IMG well over 4%...wonder how long that will last.

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Wallace
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Re: Gold

Post by Wallace » 14 Apr 2013 22:02

The gold companies are certainly in the doldrums right now and no wonder - the price of their product quadrupled in ten years, yet somehow they allowed their profits to be submerged by increased costs and even when gold was $1700 an ounce the increase in share price of the companies lagged way behind the increase in price of the commodity itself. So people pulled out their money and went into alternatives like gold bullion funds.

Yet gold bullion funds aren't the easy alternative that they are cracked up to be. One of the drawbacks is that the bullion is valued at the end of the year and if the price of gold has risen, you will receive a T3 in March showing your capital gains just as if you had sold it already, unlike company shares which don't generate capital gains until you actually sell.

I'm still bullish on gold long-term. The very fact that Cyprus can get out of its debt by selling its gold reserves means that gold is still the ultimate currency. Although Spain and Portugal could end up doing likewise, pushing the short-term price lower, there will always be buyers, people who think that all the money-printing that is going on in every country of the world just has to end badly. In the meantime, however, it could be a bumpy ride.

Clouded, the future is........
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peter
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Re: Gold

Post by peter » 14 Apr 2013 23:06

Wallace wrote:
I'm still bullish on gold long-term. The very fact that Cyprus can get out of its debt by selling its gold reserves means that gold is still the ultimate currency. Although Spain and Portugal could end up doing likewise, pushing the short-term price lower, there will always be buyers, people who think that all the money-printing that is going on in every country of the world just has to end badly. In the meantime, however, it could be a bumpy ride.

Clouded, the future is........
According to http://www.bbc.co.uk/news/business-22106187 they have something like E500 million in gold and are supposed to liquidate E400 million. That says nothing about gold being the ultimate currency, it's just an asset they have and only a few % of what they need. I don't know how big the gold market is but presumably E500 million unless you sell it all Monday at 10 AM isn't a major deal (wikipedia says the daily volume in 2008 was $14 billion).

I did look at ABX/XGD today. ABX is close to where it was at its minimum in 2008. I'm considering buying more XGD or ABX. Not so much because I'm bullish on gold because ABX is a significant part of the TSX.

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ghariton
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Re: Gold

Post by ghariton » 15 Apr 2013 17:41

Anyone feel like trying to catch a falling knife?

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poedin
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Re: Gold

Post by poedin » 15 Apr 2013 20:59

ghariton wrote:Anyone feel like trying to catch a falling knife?

George
It's looking tempting :roll: especially whenever a sector or market starts flashiing a "sale" sign.

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Re: Gold

Post by parvus » 15 Apr 2013 21:06

ghariton wrote:Anyone feel like trying to catch a falling knife?

George
Sterling or the other stuff?
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ig17
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Re: Gold

Post by ig17 » 15 Apr 2013 21:12

poedin wrote:It's looking tempting
Yes, gotta buy it here. At these levels its dividend is over 5% and P/E is under 10.

Oh wait.







(not my idea; someone twitted this today)

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Wallace
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Re: Gold

Post by Wallace » 16 Apr 2013 01:38

This is the most fascinating thing that has happened to gold since 1980.

Over the past 30 years it has become incredibly easy to buy "gold", and perhaps what is happening now has some parallels with the credit default swaps and the other complicated financial products dreamed up by the $30million a year crowd who gave us cheap money and the 2008 crash. They gave us a number of really easy ways to buy "gold" -

1. Gold stocks ETFs. A good idea. Spread the risk. Own the sector rather than a single company.
2. Gold certificates. You don't actually own any gold but, the bank says, you can convert your certificates to gold at any time.
3. Gold bullion funds. The funds buy gold for you and keep it in their vaults somewhere. You own a portion of the gold held in the vaults but it is "unallocated", in other words you don't own any particular bar. The fund says that at any time you can take possession of your gold. They are just keeping it for you.
4. Gold bullion. Allocated gold. Companies like Kitco will sell you gold and hold it for you in their vaults. Specific gold bars belong to you and you can check your gold any time.
5. Gold bullion. Personal possession. You buy gold, have it delivered, and hold it yourself, in a safe, deposit box, or under the mattress.

All these easy ways to buy gold have slowly, but relentlessly, pushed the price up as the great unwashed, like myself, have dipped their toes into the gold market. But warning signs have been everywhere:

1. Gold mining companies, as the POG has increased, have been lazy in keeping costs down. Even when the POG was above $1,700 per ounce gold companies did not seem to be able to produce the profit for shareholders that should have been there. Their product quadrupled in price over a decade but profit did not. If gold drops below $1,200 a lot of companies will fold. Gold ETFs are a very bad idea right now because all these folding companies with high debt and poor prospects will increase your risk, not decrease it.
2 Gold certificates are really just a promise. The bank promises to give you money equivalent to the price of gold if you redeem your certificates. But you don't own any gold at all. If the bank goes bankrupt you are in there with the rest of the creditors and the health of your certificate depends on the health of your bank.
3. For many years there have been unanswered questions about gold bullion funds and what they actually do with the gold even if it is actually there. Ghariton posted upthread about gold bars being found drilled out and replaced by other metals, but outright criminal activity aside, these gold bars can be lent to short sellers, rented by people who need gold short-term, and otherwise used by people with money to manipulate the POG. And the gold that is supposed to be there might not actually exist in the first place. Since this gold crisis began a ??Dutch bank has already defaulted on its gold fund, saying that it can not deliver the actual bars to customers, and has issued gold certificates (see 3 above) instead. So if the bank now goes bankrupt, customers have no claim on their gold.
4. So far the "allocated gold" system seems to be holding, but who knows how much is lent, rented or borrowed each day without the knowledge of customers.
5. Very few people actually take possession of gold from Kitco or from the bank. It is a huge pain, and I am sure there are criminal elements who monitor sites such as this to find out who are unwise enough to broadcast it, but at least if you hold your own gold you know that the product is genuine and safe in your deposit box, bank robberies and muggings aside.

What I think all this means is that there are a lot of people in "gold" who should not be there. Like the homeowners who buy half million dollar mortgages with no jobs, there a lots of people in "paper" or "equity" gold who really don't know the risks and are about to have a very hard time. The global economy is in deep trouble and distressed countries are selling gold as their last resort to keep afloat. Goldman Sachs recently advised selling gold and I suspect that this company that I deeply mistrust has already made sure that this advice will benefit themselves when the price falls. Frankly I think they are stirring the pot for their own personal gain. They know very well the economic situation of Cyprus, Greece, Spain and Portugal. Short-term the price is going to go down.

But in the long run there is no more gold in the world today than there was yesterday, and if you own the actual stuff, it is an asset very much like your house. The price may go up and down like a rollercoaster from now till next week but if you believe in the constant devaluation of paper money - (how else can the US of A get itself out of debt?) - you also have to believe that the POG will rise again and when you sell years from now, it is going to be higher.

That's how I see it anyway after a day watching BNN and biting my nails.

Cheers

Wallace
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Re: Gold

Post by scomac » 16 Apr 2013 01:54

It's funny, Wallace; what with all the nuclear sabre rattling that Kim Jung Un is engaging in, you would think that would be a positive for the price of gold. We just got back tonight from New Zealand and the Korea question was as news worthy as the daily Super 15 rugby scores, yet on this side of the pond no-one seems to notice much. I was actually quite shocked to read about the carnage both in Boston and the price of gold and gold stocks.
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ghariton
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Re: Gold

Post by ghariton » 16 Apr 2013 02:45

Claude Erb and Campbell Harvey:
While gold objects have existed for thousands of years, gold’s role in diversified portfolios is not well understood. We critically examine popular stories such as ‘gold is an inflation hedge’. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over practical investment horizons, gold is an unreliable inflation hedge. We also explore valuation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average consistent with mean reversion. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. In the end, investors face a golden dilemma: 1) embrace a view that ‘those who cannot remember the past are condemned to repeat it’ and the purchasing power of gold is likely to revert to its mean or 2) embrace a view that the emergence of new markets represent a structural change and ‘this time is different’.
This is an NBER paper and they want $5 for it. But Google will likely lead you to a free earlier draft.

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tidal
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Re: Gold

Post by tidal » 16 Apr 2013 10:31

ghariton wrote:Claude Erb and Campbell Harvey:
While gold objects have existed for thousands of years, gold’s role in diversified portfolios is not well understood. We critically examine popular stories such as ‘gold is an inflation hedge’. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over practical investment horizons, gold is an unreliable inflation hedge. We also explore valuation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average consistent with mean reversion. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. In the end, investors face a golden dilemma: 1) embrace a view that ‘those who cannot remember the past are condemned to repeat it’ and the purchasing power of gold is likely to revert to its mean or 2) embrace a view that the emergence of new markets represent a structural change and ‘this time is different’.
This is an NBER paper and they want $5 for it. But Google will likely lead you to a free earlier draft.
A great set of charts, apparently based on that paper.

Other than that idea that emerging market central banks will increase holdings (and if you look at Brazil, for instance, it's not particularly persuasive that this will be the case), it really puts an empirical shiv into many of the standard arguments for holding gold.

Bonus: For the "Nautilus Minerals" enthusiasts hereabouts, there is an even MORE audacious mining venture (private, it seems) mentioned at the end! :roll:
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Re: Gold

Post by twa2w » 16 Apr 2013 12:47

4. So far the "allocated gold" system seems to be holding, but who knows how much is lent, rented or borrowed each day without the knowledge of customers
The same issues apply here that apply to the other methods - ie drilled bars, gold being lent to short sellers etc, but also how do you really know you have the gold allocated to you? Some of these places are in remote jurisdictions ie Singapore.et al. How do you know they are even holding the gold for you. This is ripe for fraud. They may show the same bars to any number of investors. Also how do you physically take possession? In a crisis could you even access it.

Plus there is the cost of storage annually etc.

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CROCKD
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Re: Gold

Post by CROCKD » 16 Apr 2013 14:33

" A verbal contract isn't worth the paper it is written on " Samuel Goldwyn
"The light at the end of the tunnel may be a freight train coming your way" Metallica - No Leaf Clover

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Re: Gold

Post by Inquisitive » 18 Apr 2013 18:47

The same issues apply here that apply to the other methods - ie drilled bars, gold being lent to short sellers etc, but also how do you really know you have the gold allocated to you? Some of these places are in remote jurisdictions ie Singapore.et al. How do you know they are even holding the gold for you. This is ripe for fraud. They may show the same bars to any number of investors. Also how do you physically take possession? In a crisis could you even access it.
It appears CBC Television's Doc Zone is taking that on tonight,9 pm in
The Secret World of Gold.


Inq

dusty2
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Re: Gold

Post by dusty2 » 19 Apr 2013 11:37

Maybe a good way to buy some gold is to buy the best Rolex gold watch you can afford. You're not only getting the highest quality, best name and one of the best made watches, but it's something that is nice to look at and own. Which might be a reason to hang on to it and make some money in the long run. Check out the Rolex watches on E-bay - some of them have gone up by 20 times or more their original cost. Another way might be to buy a nice piece of gold/ diamond jewelry from Cartier or Tiffany's. Keep both these items stored for 20- 30 years and they should produce a good profit. Like they say, buy the best and you won't regret it.

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ghariton
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Re: Gold

Post by ghariton » 01 Dec 2013 18:05

Since M Dunleavy seems to have given up on educating us, I offer this insight as a substitute for his colourful charts.

Harry Binswanger: Gold is a spiritual value
... gold is not “a barbarous relic” (Keynes) or “filthy lucre” (preachers) but an objective, esthetic value whose meaning has roots in the nature of how our minds work and the need for incorruptible moral integrity. Gold is the symbol of remaining pure and true. Which is why wedding bands are made of gold.

Gold jewelry is fully as objective a value as utilitarian goods, such as bread or automobiles. Those goods provide value by being consumed–by being used up. You eat bread and it is gone. You drive a car and it wears out. Gold is almost unique in being an Unconsummable Consumable. Like Aristotle’s Unmoved Mover, gold provides value without being itself affected.

The oft-heard sneer, “You can’t eat gold” expresses a cynical materialism. Both artistic beauty and sensory beauty have their source in the nature of man as a conceptual being, a being who must use concepts and reasoning to survive and prosper. Animals cannot respond to artworks, to the beauty of a brilliant sunset–or to the radiant, patterned purity of gold jewelry.

The objection “You can’t eat gold” confesses a mind-body dichotomy. In fact, material value requires spiritual value, and vice-versa. For man, “value” always involves a spiritual component. Even to value food, a man has to want to live–which involves his inner commitment to fighting for his own happiness.

Gold is the ultimate expression of mind-body integration. It is the symbol of purely, “crassly” material value because it is beautiful–i.e., because it is a spiritual value.

“You can’t eat gold” inverts gold’s significance: gold is extra valuable because you can’t use it up. Gold as an Unconsummable Consumable does not have to be replenished. The gold jewelry of Ancient Egypt retains its value, bringing renewed pleasure to museum visitors daily. Because gold is, like a Rembrandt, an object of contemplation, it is used without being used up.
Who knew that investing has overtones of mysticism?

George
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parvus
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Re: Gold

Post by parvus » 01 Dec 2013 20:40

Invisible hands? Efficient markets? Animal spirits? Equity risk premium? E.F. Hutton? Smith Barney?
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Sleepy
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Re: Gold

Post by Sleepy » 05 Apr 2014 21:20

Ok I'm in trying to catch the falling knife (mind you only at 1 oz). Just thought I'd give it a try and see what its like as I never really have a good idea of how I like things until I have some skin in the game.

I must say that gold does have a compelling story and the coin I bought is fascinating to look at. It has also occurred to me that the commission cost is ridiculous. The best deal I could get was 3.5% above the spot rate for a 1 oz coin. The same little store has a buy commission of 5% so its 8.5% round trip! I found it was better to buy local otherwise, there is a shipping fee and insurance cost is ridiculous.

I do get a feeling that the place I went had an interesting clientele as it was an all cash type of place and I had to ask for a receipt. Anyways, next up is to get my bunker built and have a years supply of food and water and start taking survivalist classes. :D

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Re: Gold

Post by hamor » 23 Apr 2014 15:31

no activity in this thread, time to buy? :lol:

I was surprised Questrade (in partnership with Mint and Kitco) offers physical gold/silver in RSP.

Mark Faber
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If there was a recession in China, would people still buy gold?
I think, if the Chinese economy imploded, it is likely that the currency would begin the weaken (the Yuan). Or that the government would implement a devaluation of the Yuan. If that were the case, I think that Chinese individual investors would rather shift of their money in gold (which they can buy in China nowadays) then keep the funds in the local currency. I think that trouble in Asia and geopolitical unrest in Asia, along with [economic] problems in the rest of the world, may actually lead to higher gold demand rather than lower gold demand.

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Norbert Schlenker
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Re: Gold

Post by Norbert Schlenker » 23 Apr 2014 22:38

Sleepy wrote:It has also occurred to me that the commission cost is ridiculous. The best deal I could get was 3.5% above the spot rate for a 1 oz coin. The same little store has a buy commission of 5% so its 8.5% round trip!
A repetition of every gold rush in recorded history: the gold ends up in the hands of the shopkeepers. ;)

The 8.5% isn't something you had to pay. Kitco is a reputable dealer and their spread is under 3%. What the 8.5% tells you is that there's no volume where you are, it's not that easy a business, or somebody's getting fat. A minute's looking would probably be able to distinguish which.
hamor wrote:Faber predicts ...
Are Faber's predictions better than a coin toss?
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DenisD
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Re: Gold

Post by DenisD » 23 Apr 2014 22:57

About 45% success rate as of Nov/2012. But you don't have to be better than a coin toss to make money. 8)

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hamor
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Re: Gold

Post by hamor » 25 Apr 2014 16:21

Denis, this is funny, thanks for the link :)
Norbert, I did quote the Dr., but I didn't say 'Faber predicts', which IMO would imply I trust his predictions.
Perhaps the simple fact I quoted him implies that I do, but I really hope I don't :)
I have to fight my 'doom and gloom' bias all the time...

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Re: Gold

Post by Mike Schimek » 27 Apr 2014 01:20

I've gotten a bit disenchanted with some gurus who's views I value highly, notably Peter Schiff and Marc Faber.

Schiff rants every day about how horrible things are in the U.S., but when I look at data points, things appear to be going quite well.

People's who's opinions about something never change or waver in the slightest, even when that 'something' changes continually, worry me about their objectivity.

If Schiff said something at some point positive about the U.S., even a small thing, then I would feel like his opinion is more balanced and objective. But everything seems to be negative, no matter what. The deficit is declining, there is some growth, Obamacare has been getting delayed, etc. But he can never, ever, mention a positive...

Faber seems similar though I don't follow him as much. He's funny and entertaining to listen to though -)
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ghariton
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Re: Gold

Post by ghariton » 27 Apr 2014 12:44

Mike Schimek wrote:People's who's opinions about something never change or waver in the slightest, even when that 'something' changes continually, worry me about their objectivity.
On the other hand, they will eventually turn out to be right... some day.

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hamor
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Re: Gold

Post by hamor » 02 May 2014 19:01

Even a blind squirrel finds a nut once in while :D
Even a dead clock is right twice a day :)

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