Gold Price - Where is it heading?

[howmanyru]

Gold is not an investment, it's a method to protect your wealth against monetary supply expansion, and a tool to hedge against the collapse of fiat currency.

I get your point, but how is a 500% rise in 10 years not an investment?

 

[Tysonboss1]

1, Gold is not an investment.

2, it's a method to protect your wealth against monetary supply expansion,

3, and a tool to hedge against the collapse of fiat currency.

1, When I say those five words it ends in a giant arguement

2, Yes, I aggree with that. As with any commodity or real thing. But is it the best thing to hold to achieve this, and can it achieve this if it is bought at any price. What price do you see as being to high to have a resonable chance of meeting this end.

3, Again is it the best asset to hold long term as a hedge against this, and is buying it at any price going to work out well for you. obviously their is a tipping point where it becomes to expensive and to risky to hold gold, Like all assets the asset class itself does not garantee a good result,

 

[Tysonboss1]

I get your point, but how is a 500% rise in 10 years not an investment?

Because an investment attitude looks to the asset itself to generate the return, If the expected return is going to come solely from another person paying a higher price for the same article in the future it is price speculation, not a true investment.

Profit or loss alone does not make something an investment,

Buying anything, Gold, shares, property, artwork etc.etc and hoping it's price goes up tommorrow is specualtion, and is different to buying a producing asset and holding it and collecting the output from it over time.

Thats the difference between investing and trading, They are two very different things.

Say, I buy a farm. and I do my calculations and I work out over time through good years and bad years it should return me about $80 / acre in crops per year, and I can purchase it for $300 an acre, I am making an investment, it can operate as a sound investement for me regardless of the short term price fluctuations in the value of the farm.

But, if look at say weather forcasts and decide to buy a farm today because it looks like it might rain next week and I plan to sell the farm for a higher price after the rains come, that is pure speculation.

Same goes with property, shares and commodities (including gold)

 

[Mr Z]

Try telling people that a home in not an investment if you think that gold gets a bad reaction!

There are wide and varied definitions of what constitutes an investment, for me it has to produce income over the rate that I can get in the relative safety of a bank. Any less than that and you are speculating. In this world most of the ASX and most real estate falls into the speculation field. People getting 3% on resi with holding cost of 1% before interest are kidding themselves that they have an investment... sorry... they have a speculation.

Anywhooo the last time I started that discussion I got many and varied ideas on what and investment was, needless to say none lined up with mine... it is not just gold buyers that are confused on that front. In the end it is just semantics, Gold is a hedge, one that is essential in this current climate and it will work until real rates go positive enough to discount the anticipated inflation rate one year forward. For now and for the foreseeable future real rates (rates - the true rate of inflation) are negative and will stay that way as a matter of policy. The rest is noise really

 

[Mr Z]

I get your point, but how is a 500% rise in 10 years not an investment?

You invest for income, you speculate for gain. Investing should be lower risk, lower reward and greater stability, speculation fairly much the opposite. IMO gold is neither, it is a hedge, a refuge. In days gone by it was considered prudent to have 10% in gold as a permanent hedge. That idea has only just resurfaced again in the last five years. It will probably be common wisdom by the time this is all done.

 

[Tysonboss1]

1, for me it has to produce income over the rate that I can get in the relative safety of a bank.

2, In this world most of the ASX and most real estate falls into the speculation field.

3, Gold is a hedge,

1, I agree, But I think it has to outperform the bank account after inflation. eg. a property earning say 4% free cashflow (after maintence, rates, insurance etc) would outperform a bank account at 6% because the property value (outside bubble conditions) will atleast hold pace with inflation so the 4% is a real 4% where as the 6% will reduce to 1% after inflation and income taxes are deducted.

2, Their are plenty of good companies who's businesses are generating returns in excess of bank interest and who's earnings will offer a hedge against the dollar.

3, I agree, and I always have. But at some point when the price has outperformed what it is hedging it may lose it's "safe and sound" status. It's not a hedge at any price.

 

[Tysonboss1]

You invest for income, you speculate for gain.

You can invest for gain as well.

for example, Say a company owns an operating business and only pays out 50% of earnings and retains the other 50% those retained earnings have added value to the company, If the retained earnings are used to open more succesful stores, mines, factories etc. etc the value of the company will grow and over time it's share price should reflect this.

A person who buys this company at a fair price today can expect a capital gain over time and not be considered a speculater, If he expects the capital gain within a certain time frame, Or pays no heed to the price he pays vs it's current value then he is speculating.

2 people can buy the exact company on the same day and one can be speculating while the other investing.

 

[Mr Z]

1, I agree, But I think it has to outperform the bank account after inflation. eg. a property earning say 4% free cashflow (after maintence, rates, insurance etc) would outperform a bank account at 6% because the property value (outside bubble conditions) will atleast hold pace with inflation so the 4% is a real 4% where as the 6% will reduce to 1% after inflation and income taxes are deducted.

In my book you are blurring speculation with investment there, you are assuming that property prices will rise in line with inflation, that is not a certainty as other factors play into the property price. You invest on what is now, you speculate on what might be. In truth all "investments" contain a degree of speculation but if you are an "investor" you leave them outside the decision, the investment should justify itself on current numbers. Australians typically negative gear property and speculate on it rising, true investors only go for cash flow positive situations, which I think has been proven to be a superior strategy in RE.

2, Their are plenty of good companies who's businesses are generating returns in excess of bank interest and who's earnings will offer a hedge against the dollar.

Gold is a systemic hedge, it lays out side of and is independent of the system. It rises in times of systemic stress, nothing much else fills that role quite as well as gold. You definitely can't use vehicles within the system to hedge systemic risk.

3, I agree, and I always have. But at some point when the price has outperformed what it is hedging it may lose it's "safe and sound" status. It's not a hedge at any price.

Yes... and if we where at a solid five figure price I would be more concerned. The fundamentals are such that gold is close to zero risk over the mid term. Unless we have an economic epiphany and elect disciplined and responsible politicians. Is that likely? Nahhhhhhhhhhhhhhhhh!

 

[Mr Z]

You can invest for gain as well.

for example, Say a company owns an operating business and only pays out 50% of earnings and retains the other 50% those retained earnings have added value to the company, If the retained earnings are used to open more succesful stores, mines, factories etc. etc the value of the company will grow and over time it's share price should reflect this.

A person who buys this company at a fair price today can expect a capital gain over time and not be considered a speculater, If he expects the capital gain within a certain time frame, Or pays no heed to the price he pays vs it's current value then he is speculating.

2 people can buy the exact company on the same day and one can be speculating while the other investing.

Basically, in part, you are speculating about the future based on your knowledge of the expected fundamentals and expected future behaviors. If I where to allow that then I would have to say that gold is an investment because given the fundamentals and expected future behaviors gold will rise in value.

That more plays to the idea that you tend to call what you are comfortable with an investment and all else speculation. Sorry, no, I invest for income TODAY and I speculate for gain TOMORROW. Most all situations these days must contain an element of both, that is due to our monetary system and the way credit works and is managed in a modern economy. It forces us all to be more the speculator and less the investor and the way the Fed is behaving they are forcing us into all speculation all the time mode. Less and less it matters about the vehicle and more and more it is all about the state of the currency at any given time. This little episode with the USD is a classic example of how the system has been skewed. It is sad but before this is done we will all be speculators or poor.

 

[Mr Z]

Louis-Vincent Gave: The Euro Debate—Why Debt Monetization Seems the Likely Outcome (Podcast)

 

[Mr Z]

2, Their are plenty of good companies who's businesses are generating returns in excess of bank interest and who's earnings will offer a hedge against the dollar

Around 57 by my criteria, many of which I wouldn't touch due to my macro view of the world.

 

[Tysonboss1]

1, you are assuming that property prices will rise in line with inflation, that is not a certainty as other factors play into the property price.

2, Australians typically negative gear property and speculate on it rising, true investors only go for cash flow positive situations, which I think has been proven to be a superior strategy in RE.



3, Gold is a systemic hedge, it lays out side of and is independent of the system.
It rises in times of systemic stress, nothing much else fills that role quite as well as gold. You definitely can't use vehicles within the system to hedge systemic risk.



Yes... and if we where at a solid five figure price I would be more concerned. The fundamentals are such that gold is close to zero risk over the mid term. Unless we have an economic epiphany and elect disciplined and responsible politicians. Is that likely? Nahhhhhhhhhhhhhhhhh!

1, It won't match it pound for pound each year, But over time a property bought at about it's intrisic value, ie. not at speculative highs, will have it's capital value trend up as inflation devalues the money we use, Just as the price of big macs, coke etc etc go up.

2, Agreed, Negative gearing is a perfect example of how a sound investment can be turned into a risky speculative gamble.

3, Yes gold will rise when there is panic, fear and the opposite will also occur, It can not be purchased at any time and at any price and guarantee good results for the holder, It will fluctuate, and people buying in at the heights of the panic driven fluctuation may well do very poorly.

 

[Tysonboss1]

Around 57 by my criteria, many of which I wouldn't touch due to my macro view of the world.

There is more than 57 earning profits higher than bank interest, But you only need 10 of them to build a diversified portfoilio.

 

[Mr Z]

There is more than 57 earning profits higher than bank interest, But you only need 10 of them to build a diversified portfoilio.

Sure but they are not all financially sound by my measures, investment is about the security of the dividend not the absolute amount of the dividend. Once you get fussy about the fundamental condition of the company, let alone the macro fundamentals, your list should shortened significantly. If I get fussy about the risk over and above what I can earn in a decent account the list narrows again. Then you have to ask --> Do I feel secure in a market where I consider less than 1% of the float investment quality? My answer is no, so I speculate for capital gain over investing for income and I shorten my time horizon significantly.

 

[Mr Z]

1, It won't match it pound for pound each year, But over time a property bought at about it's intrisic value, ie. not at speculative highs, will have it's capital value trend up as inflation devalues the money we use, Just as the price of big macs, coke etc etc go up.

Given the current credit fundamentals and the woeful resi yield you are definitely speculating in resi real estate at this point in history. You cannot make the blanket assumption that it will rise inline with inflation at this point in the market. History shows us that during periods of accelerated inflation resi real estate slips in value due to the inability to reprice rent in line with general price rises. Resi real estate works at the end of this cycle and during the mild inflationary periods in the cycle as we move into the final phases of an inflationary cycle it loses in real terms. We are there, inflation is accelerating, speculation in resi from here will not end that well in real terms. Let me know when it is generally yielding 7%+ again.... which it will.

I'd rather money in the bank... and I loath that!

3, Yes gold will rise when there is panic, fear and the opposite will also occur, It can not be purchased at any time and at any price and guarantee good results for the holder, It will fluctuate, and people buying in at the heights of the panic driven fluctuation may well do very poorly.

For the last ten years you could have bought it at any point, not that I would advocate that. Going forward it will be the same for a while especially if you are sensible and average in your purchases. You keep talking like we are near the end of this YET not once have you pointed out WHY you feel that way? There are a mountain of issues that need to be resolved here, none of them simple, none of them with quick fixes all of them driving people to look for security outside the system. IMO you have not seen panic yet, you have only seen mounting interest in gold, it will get quite hair raising if we get a true panic. Any purchaser of gold to date will have an ample window to sell before this is done, the fundamental forces at play here are simply huge.

 

[Tysonboss1]

Sure but they are not all financially sound by my measures, investment is about the security of the dividend not the absolute amount of the dividend. Once you get fussy about the fundamental condition of the company, let alone the macro fundamentals, your list should shortened significantly. If I get fussy about the risk over and above what I can earn in a decent account the list narrows again. Then you have to ask --> Do I feel secure in a market where I consider less than 1% of the float investment quality? My answer is no, so I speculate for capital gain over investing for income and I shorten my time horizon significantly.

Each to his own,

The risks of investment can be elliminated by sound fundamental analysis combined with application of the margin of safty principle and diversification.

If an operation is not using the margin of safty and diversification then it is much closer to specualtion, an operation holding a single stock, no matter the quality, that operation is a speculative operation.

I don't believe in following macro events,

 

[Uncle Festivus]

Investment - speculation - who gives a toss?

Better debated in another thread?

 

[explod]

Each to his own,

I don't believe in following macro events,

Well I think you should at least take them into account, We need every tool we can find and understand in this climate.

Most of what you say reeks of being fed by financial advisors. They are not able to profit from trailings fees etc from gold or silver

I got rid of may last one in 2004 and it was one of the best things I have ever done. The best was learning to make my own decisions based apon my own research.

 

[Mr Z]

The risks of investment can be elliminated by sound fundamental analysis combined with application of the margin of safty principle and diversification.

If only that where so! Price is set by supply and demand for the item and the supply and demand for the currency used to price that item. With the instability we are experiencing on the currency side of the equation not considering where that market is can damage you (witness recent market action!). The problem with traditional "sound fundamental analysis" is that it only looks at the fundamentals of one half of the equation while ignoring the currency half. We are in a world where what is happening in the currency half matters more and more. Again, witness 2008 and recent market action and for that matter all the action in between. So while it is important it is not the be all and end all anymore... the world is not as it was when Warren was a boy! Other things are driving this market as well as individual stock fundamentals --> tidal waves of fast hot money. Got gold?

I don't believe in following macro events,

I am stunned! Basically you are advocating willful ignorance when it comes to understanding the over all environment we are operating in. I must say it explains many of your attitudes and your approach to gold. Personally I prefer to sail with the tradewinds. I look bottom up on fundamentals but only in certain areas determined by the macro environment AND I always keep my mind open to short term disruptions caused by currency issues, things like rallies in carry source currencies.

 

[Tysonboss1]

1, Given the current credit fundamentals and the woeful resi yield you are definitely speculating in resi real estate at this point in history. You cannot make the blanket assumption that it will rise inline with inflation at this point in the market.

2, History shows us that during periods of accelerated inflation resi real estate slips in value due to the inability to reprice rent in line with general price rises.

3, Resi real estate works at the end of this cycle and during the mild inflationary periods in the cycle as we move into the final phases of an inflationary cycle it loses in real terms. We are there, inflation is accelerating,

4, speculation in resi from here will not end that well in real terms. Let me know when it is generally yielding 7%+ again.... which it will.

5, I'd rather money in the bank... and I loath that!



6, There are a mountain of issues that need to be resolved here, none of them simple, none of them with quick fixes all of them driving people to look for security outside the system. IMO you have not seen panic yet, you have only seen mounting interest in gold, it will get quite hair raising if we get a true panic. Any purchaser of gold to date will have an ample window to sell before this is done, the fundamental forces at play here are simply huge.

1, Hence why I said it will function as a hedge when it is purchased at close to it's intrinsic value and outside of bubble conditions, And that an asset class in itself does not guarantee safty of principle, But rather the price you pay for it and the items quality.

2, wages will eventually follow inflation and so will rents.

3, I don't believe we will have hyper inflation, and I tend intend to hold my real estate for along time, so the actual timing of the ebbs and flows are of little concern to me. I will much rather hold my realestate collecting rent than try and time the market and dance between the asset classes. I haven't bought any real estate for along time due to it not meeting my IV estimates, But if there was a correction I might add a property to my portfolio.

4, 7% Gross rent would be about 5.6% Net free cash flow, this would indeed be a fantastic purchase, If there were some big shocks it might get there. But it would not be sitting at that level for an extended period. before that boom that started in 2001 there was a period of stagnation that saw gross yields nearly hit 6%, Offcourse this contributed to the boom.

5, I always have a bit off cash around, minimum 12 months living expenses. But I would much rather asssets, Not buying property at the moment though.

6, The issues will be fixed, and it is far from certain that there will be big shocks.