Gold As An Investment?

[Pot Odds RAC 23]

And again, you have to realize that we're not talking about gold increasing in value -- it's not. It's just stable vs. a declining dollar. It's a place alternative to dollars to hide and secure value.

I don't think that's entirely true. The Kitco site does a good job of breaking down the effect of the change in USD vs. Predominant Buying/Selling. Yeah, there is a gap but Gold is still rising.http://www.kitco.com/kitco-gold-index.html

[ahosang 0]

But a larger part of me wants it to keep going, because then all the economists I respect will have been right (again). But yeah, I'll take "every idiot on the street thinks he's a 'gold investor' " as a contrary indicator over some technical made up mumbo jumbo about moving averages and classic double peak inverted axis BS.I called the tech stock peak a couple years too early and the housing peak about a year early, so I'm not saying "today is the day", but wherever it goes, it's definitely coming back to here. You can try to pick the top, or sell it at this price on the way down.

I didn't want technical analysis or jargon. Just a reasonable set of reasons why gold is in a bubble, that's all. I presume you had reasonable points concerning the real estate and tech bubbles, or were you just lucky??If your rationale is something about "man is the street thinks he's an investor", then I guess it's just a hunch. Don't get me wrong; you're entitled to have a hunch and state it. We all do from time to time. Just wondering if there was any reason grounded in economics why you thought gold was at a bubble point, or near to one.

[strategy 4]

And again, you have to realize that we're not talking about gold increasing in value -- it's not. It's just stable vs. a declining dollar. It's a place alternative to dollars to hide and secure value.

in addition to what porac linked, you could also look at currency exchange rates, or any number of other metrics to confirm that gold's rise isn't just dollar devaluation.also, I guess people who use this argument just don't trust the government to accurately calculate the CPI? they'd have to be off by an order of magnitude to explain what's happened to gold.the markets look relieved with bernanke's speech today.

[El Guapo 8]

in addition to what porac linked, you could also look at currency exchange rates, or any number of other metrics to confirm that gold's rise isn't just dollar devaluation.also, I guess people who use this argument just don't trust the government to accurately calculate the CPI? they'd have to be off by an order of magnitude to explain what's happened to gold.the markets look relieved with bernanke's speech today.

If we used the same measure for CPI that we did in the 70's and 80's, it would be over 10% this past year. CPI is now energy and commodity adjusted. The government did this because S.S. is tied to CPI, and they basically could not keep giving those raises and keep the integrity of SS.

[GWCGWC 83]

Anyone else here interested in studying manias? I am. I think a lot of it tracks back to my growing up when the baseball card mania was in full swing and even at a young age, being acutely aware of the irrational sentiments and widely-held delusions involved. It fascinated me unlike anything else, watching large groups of people behave so, so stupidly based on some 'belief'... I have pretty much all the 'standard' books on the mania topic. I'm breaking them out and re-reading them all.

Can you list your top three 'standard' books on the mania topic? If you were to recommend just one, what would it be?

[ahosang 0]

What signals exactly?? What indicators exactly?? @everybody else:Today we saw a nice dip. Further to the business of elguapo's posting of the true nature of the GLD ETF, today GLD had 25 tonnes moved out of inventory(all can be seen in front page of website - its not a secret). Guess what?? That means that someone has booked themselves 25 tonnes of gold in a transfer obscured by 'market activity'. ROFL!!!! But hey, good thing big players can transfer ownership of 25 tonnes of physical gold via the design of GLD ETF, eh!! Like I said there is no 'panic selling', just big players buying up the gold on the dips, since they KNOW it is going higher.Now stand by for the price to rise in the next week...

Update, so at time of above posting, gold was ~$1835/oz. But wow!! We had another 27 tonnes of gold moved from GLD inventory the very next day!!! This back-to-back draining of GLD is a very, very rare event, and the amount totals 52 tonnes of gold!! So anyway, the price falls further to bottom ~$1700. And like clockwork, there is a sustained price rise from that bottom(having moved 52 tonnes of gold from GLD remember!!), and as I said(before knowing of the second withdrawal), there will be a price rise. Of course after the second massive withdrawal and price drop, the price rise had to start from ~$1700. But a massive rise since midday yesterday and today sees a rise of ~ $110 in 32 hrs, and close out at ~$1825.Obviously the price is still below the $1835 price which I posted the comment to coincide with. But anyone want to bet against gold-price passing that and going back towards $1900 next week??? Do not worry about volatility. it is now that money will be made on this transition by the large bullion banks.

[hblask 1]

I didn't want technical analysis or jargon. Just a reasonable set of reasons why gold is in a bubble, that's all. I presume you had reasonable points concerning the real estate and tech bubbles, or were you just lucky??If your rationale is something about "man is the street thinks he's an investor", then I guess it's just a hunch. Don't get me wrong; you're entitled to have a hunch and state it. We all do from time to time. Just wondering if there was any reason grounded in economics why you thought gold was at a bubble point, or near to one.

Yeah, I think you have a point here. For the tech bubble, PEs for a lot of tech companies were in the hundreds, and for tech overall at one point was over 50, IIRC. That is never sustainable. And the guy across the street quit his construction job to become a "day trader", lol.With housing, there was no one indicator that clear, just everyone saying "that's nuts" as they continue to buy buy buy. A few years later I saw a graph of some historical data, I think it was avg housing cost per income or something like that (BG posted it in the politics forum, I think) and it was so far out of line it was amazing. In both cases, the man on the street was telling the same answer as the statistics.So do I have some fundamental indicator on gold? No, I'm sure one will turn up after the crash. Someone will say, look it was so obvious, how'd we miss it? I don't know what it will be. The confusion on why gold has value seen in this thread and others is part of the problem why it is so difficult to know where to look. But when people who flunked arithmetic start thinking they can beat the pros at investing in a particular product, time to hide your money.The graph that *should be* most fundamental, in my opinion, is "money supply vs economic growth". And that looks to me like gold has a long way to go. But the informal indicators are saying sell.What is that worth? Not much. Anyone who is getting investment advice from a poker forum message board is going to be broke soon anyway. This is all just for our own amusement, right?

[ShakeZuma 585]

Anyone who is getting investment advice from a poker forum message board is going to be broke soon anyway.

fuck

[strategy 4]

If we used the same measure for CPI that we did in the 70's and 80's, it would be over 10% this past year. CPI is now energy and commodity adjusted. The government did this because S.S. is tied to CPI, and they basically could not keep giving those raises and keep the integrity of SS.

do you think the dollar has lost 10% this year? I don't really live in the real world, but my shit doesn't cost that much more than it did a year ago.

With housing, there was no one indicator that clear, just everyone saying "that's nuts" as they continue to buy buy buy. A few years later I saw a graph of some historical data, I think it was avg housing cost per income or something like that (BG posted it in the politics forum, I think) and it was so far out of line it was amazing. In both cases, the man on the street was telling the same answer as the statistics.

the big obvious one I saw was avg home price/avg annual income. it got to like 12 in california.

[hblask 1]

the big obvious one I saw was avg home price/avg annual income. it got to like 12 in california.

Yeah, I think this was it, it's even more dramatic over a long time period:EDIT: Found a graph with a longer time frame:

[AmScray 355]

Just wondering if there was any reason grounded in economics why you thought gold was at a bubble point, or near to one.

The maxim of the markets being a short term voting machine but a long term weighing machine has a very explicit underpinning.At the end of the day, no matter what's being traded (houses, gold, equities), it inevitably comes back to credible value. It's amusing (but profitable), how regularly enormous groups of people are willing to forget this. When speculation starts to outstrip articulable value (and prices begin to hinge on hope, faith and theories), we examine the reasons for that happening. Are those reasons derived from credible change, that exists now but didn't exist before? Or is it a circle of fools, feeding off each others actions? Tech circa 1998 is a classic example about how real value can deteriorate into unreal mania. While it eventually devolved into a pump and dump (meant to fleece John Q Investor), the 'excitement' about what tech represented was a very credible thing. The internet WAS going to be a big deal... People DID see that coming. Where the bubble became a bubble is when it detached itself from credible value. When companies were springing up and going public before the ink had dried on the S-1- not because they had any credible prospects that people might want to invest in, but because everyone had a lot of hope. Houses? Same thing. You'll find that every single mania, at it's foundation, is rooted in very credible things. Yes, the internet WAS going to be a big deal. Yes, up to that point, there were some fantastic returns being had in real estate. Yes, there is a wave of retirees heading to Florida and Arizona and it makes sense to get ahead of that curve... So, what made the housing bubble a bubble? Same thing as tech. It detached from fundamentals. Gold is unique. While you can make some rough comparisons, it's unlike any other medium we have. Still, we have to ask ourselves, from where does gold derive it's value? And of that value, how much is credible? This is extremely hard because it IS so incomparable to anything else. We can look at a few things, though. We can look at industrial consumption, we can look at sovereign consumption, jewelry consumption. We can look at how much it costs to produce an ounce of gold. We can try to quantify demand and further, try to isolate the rudiments of that demand. We can throw all that into the intellectual hopper and try to determine if demand is based on credible value, or on greater-fool stuff. The problem with gold is, it derives its ENTIRE value from perception... So, is it really an unreasonable conclusion to draw that it's going to tear it up when perception runs hot, then eat shit when perception runs cold? Because that's what the historical record says about gold. The economic reasons to be weary of outsized gold returns are no different than the economic reasons to be weary of any market that starts to arbitrate its price on maniacal interest.Again, gold is unique. It has special properties tied to monetary policy that make it hard to write off as a speculative vehicle, but there's still no escaping that speculation is where the value of gold is drawn. If sentiments change, or if that speculation turns out to be wrong, is it unreasonable to assume that gold will return to a sustainable pricing level, rooted in more 'fundamental' pricing principles?This is fully quantifiable, articulable value

This is qualitative value with the theoretical prospect of 'potential'.http://www.youtube.com/watch?v=wMQ8vxAm4FY...feature=relatedShe could get on American Idol, garner a huge sympathy vote, go totally viral and sell a shitload of downloads on iTunes, but is that likely? And even if lightning strikes, where is she 5 years from now?That's the difference between value and perception. Value is always there. Perception is fleeting and can be based on bullshit, even if a lot of people get behind it. Gold is in that very weird class of things that derives a credible value from irrational perception.

[ahosang 0]

There is no mania in gold.The price is being driven by the big players. The little man just tags along for the ride(if he's astute enough to do so). Big players have the perception that the asset will be desirable and priced higher.

[FCP Bob 1,312]

If you listen to this author gold and other commodities are a huge bubble.The Collapse Of The Commodities Bubble

[ahosang 0]

If you listen to this author gold and other commodities are a huge bubble.The Collapse Of The Commodities Bubble

Bob, the article started well, and i agree with some of his points about credit etc. But the last third when he decides to focus on gold is very, very weak, and ultimately has the same fundamental misunderstanding of gold that most commentators do. I guess its just a mindset thing, and people struggle to see things as they are, rather than as they have been taught to ...It seems as though the author has anti-gold bias which is a dead-weight around his neck in trying to write about the subject. If there is any point from the last third that you would like to discuss, I'd be happy to. I'll make an observation from the very beginning(of the gold part):

Gold has been increasingly considered to be the ultimate safe haven. The certainty has been so great that prices rose by hundreds of dollars an ounce in a blow-off top over a mere two months. The speculative reversal currently underway should be rapid and devastating for the True Believers in gold's ability to defy gravity eternally. Expect to hear all about the enormous Ponzi scheme in paper gold, and a lot more about plated tungsten masquerading as gold. It doesn't even matter whether or not that rumour is true. What matters is whether or not people believe it, and how it could feed into a spiral of fear as prices fall.

1) What "speculative reversal currently underway"? Gee, a price hits an all time high, and cools off to levels seen 3 weeks before(that were highs then!!!), and we have a disaster?? 2) Possibly true about fear and rumours, BUT the vibe amongst the gold buying community seems to be that if those rumours WERE given further credibility, then gold price might actually rise higher as a result.That's in the first paragraph(of the gold part), the rest is just miserably argued.

[aucu 3]

POG down to $1650 almost $260 off it's high, Ag down to $30Some of this is driven by margin calls and fear. But if we keep going down a new trend will be set and where it stops is anyone's guess

[FCP Bob 1,312]

POG down to $1650 almost $260 off it's high, Ag down to $30Some of this is driven by margin calls and fear. But if we keep going down a new trend will be set and where it stops is anyone's guess

That sound you hear is the bubble bursting.

[brvheart 1,752]

Holy crap. Silver dropped 15% on Friday alone.

[El Guapo 8]

Holy crap. Silver dropped 15% on Friday alone.

Sold at 42 rebought at 29 and change.

[brvheart 1,752]

Sold at 42 rebought at 29 and change.

I've been out of silver for awhile, but I should definitely try to snag some at the opening bell.

[aucu 3]

That sound you hear is the bubble bursting.

It was showing bubble like characteristics, overdue correction yes, capitulation yes, definitely can go down more but the fundamentals are still there because it's not about gold it's about the dollar, euro,,,Silver I think has more downside risk than gold at this point, I would jump in at around $26, Definitely getting ready to go into buy mode.

[strategy 4]

I think it was a margin thing. retail has fueled this run-up. the reason the public is so big into gold (fear over the economy) hasn't gone away.

[AmScray 355]

Can you list your top three 'standard' books on the mania topic? If you were to recommend just one, what would it be?

Sorry I missed this."Extraordinary Popular Delusions and the Madness of Crowds" is the standard philosophical primer- written forever ago, but 100% relevant today. For something a little more nuts and bolt'ish', "Irrational Exuberance" by Schiller. Definitely get those two. The thematically related books that will scroll by in the "You Might Also Like" toolbar on Amazon, 99.5% chance I own those too so if you find any titles compelling, ask here and I'll give my honest opinion of it. Someone walks by a fishtank in the store and, without anything touching the tank, all the fish jolt in one direction, in perfect unison... The basic idea is to further your understanding of the "why" part when it comes to people doing the same shit, which boils down to determining whether they're responding to a credible predator, responding to a shadow that may or may not be a predator or just responding to everyone else jolting. Fish are simple because all they do is jolt and don't care whether they're right or wrong. People are a lot more complicated. They jolt just like the fish but right or wrong, they'll come up with all manner of reasons, rationalizations and explanations for why they reacted that way that may or may not track back to the truth. To succeed in life, you have to intimately understand the herd, but you absolutely cannot be a part of them. Studying manias is great practice to keep our natural 'pack impulses'- to join with popular modes of thought and overemphasize the 'wisdom of the crowd'- in check.

[AmScray 355]

As far as the face rippage on gold and silver- we saw the same thing after the Great Spook of 2008, when deflationary fears and delevering caused everyone to dump metals. Then, they shot right back up as the printing presses started rolling.... Doesn't mean the same thing is going to happen this time, but this show played out in the not too distant past and metals continued to go up.Also, Hardcastle and McCormick is on now. How great was this era of TV? We're too cynical to enjoy those concepts today. I think we should vote Stephen J. Cannell's corpse as President, Mike Post as VP so they can make the entire country like an 80's action TV show, complete with orchestrated theme music and fixed-camera car flips.

[Pot Odds RAC 23]

That sound you hear is the bubble bursting.

Sure it is.All the way down to $1,657...a number that was stunning only a few months ago.Many of the "experts" have been looking for a 20% correction followed by run up to 2,200We'll see in the next 6 months if it is a bubble or a temporary correction.

[strategy 4]

secrets of professional turf betting by robert bacon (1952)http://www.videosfinder.com/stocks/books/S...TurfBetting.pdfsome hedge funds have the new guys read this. talks a lot about the sort of thing scram described above.