Gold Price - Where is it heading?

Mr Z said:

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.

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I look much more closly at each indiviual company than the macro events.

If I buy shares in a property company, it is because I liked the strength of their assets and the quality of the tenants, I like the directors capital management policy and debt levels etc.etc.

I am not looking at the macro events from the perspective of "Interest rates are going down, I better buy into a property reit because they may be up next quarter.

Tysonboss1 said:

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

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The issues cannot be fixed by government, it is simply not possible. It is worth spending time to understand why that is so. These issues will resolve themselves in their own time, faster if not prolonged by government. There is no fix and they know it! There is only kicking the can down the road, in the same way a junkie does with another hit or an alcoholic with another drink --> it only works for so long then reality bites.

Many years ago 7% was a very normal return on real estate. From that comment I glean that your long term has not been that long in the scheme of things. Country real estate could better 10% yield as recently as the early 90's. We are now in a bubble, yields will return to and exceed those levels at some point, we always overshoot!

Macro is a lot more than interest rates moves over a quarter! We are talking about seismic shifts in the global economy, it is a little like being a farmer and ignoring a long term shift in the weather pattern. Firstly it is easier to understand and predict long term than it is tomorrows weather and the patterns and cycles are more defined than you may think possible. Predicting next quarters interest rates is a lot closer to predicting tomorrows weather, I am talking about broad undercurrents that will shape the rest of your investing life.

Mr Z said:

1, Many years ago 7% was a very normal return on real estate. From that comment I glean that your long term has not been that long in the scheme of things.

2, Country real estate could better 10% yield as recently as the early 90's.

3, We are now in a bubble, yields will return to and exceed those levels at some point, we always overshoot!

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1, Capital city rental properties offer stability of cashflows almost unheard of in any other business, While also offering a large degree of protection against inflation. If it were offering 7% gross rent I would venture to say alot of capital would start heading into it and drive the yield lower with in a short period of time.

2, And so it should offer higher yeild than the city, There are other risk factors.

3, many areas are over priced, I have agreed with that many times. But 7% would be an over shoot, and would only last as long as other asset classes were depressed and offering high yields. ie. if the stock market started yielding say 10%, or term deposits were 9% then property may leak capital for a while.

Tysonboss1 said:

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

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There will be more 'shocks' & it is far from certain that the 'issues' will be fixed.

At least they won't be fixed on current income/expense projections, for any country with debt problems ie the usual Euro ones, Japan, & most importantly the US (China too has 'hidden' debt that is going to make llife hard for them too)

For the US to get their house in order there will be need to be recession inducing cuts to gov exp - simple maths. Or a massive increase in revenues. Or both.

It's only a matter of time.

As for Buffet, he was just very good, and lucky, in taking advantage of the greatesst era of monetary expansion the world has seen. Otherwise known as a Ponzi scheme. Like you say, all bubbles burst eventually......this one has gone for over 40 years.

Tysonboss1 said:

1, Capital city rental properties offer stability of cashflows almost unheard of in any other business, While also offering a large degree of protection against inflation. If it were offering 7% gross rent I would venture to say alot of capital would start heading into it and drive the yield lower with in a short period of time.

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Yes... but that is the times we are in, monetary inflation on a global scale at unprecedented levels has mispriced risk for over a decade. A notable feature of the pre 2008 crunch was that all assets classes rose in unison and ended up priced for perfection. 7% now seems over the top where it was once the norm but then they didn't count on massive price increase either. Here we have low prospects for growth over the next decade and low yields, it does not make sense as an investment ans is a poor prospect for speculation.

Resi property is largely driven by the capital available to the small time investors, the mom and pops. They are tapped out on their credit lines and the market is facing the demographic shift of the boomer's heading into old age. Neither of those bode well for the future especially considering what inflation will be by the time we hit 7% yields. No that will not change the scene much at all until the high inflation number that will be starts to contract.

Tysonboss1 said:

2, And so it should offer higher yeild than the city, There are other risk factors.

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No more so that the city, unless you are stupid, but then you can make similar mistakes in the city. It is less about risk and more about popularity and mom and pops comfort zone IMO.

Tysonboss1 said:

3, many areas are over priced, I have agreed with that many times. But 7% would be an over shoot, and would only last as long as other asset classes were depressed and offering high yields. ie. if the stock market started yielding say 10%, or term deposits were 9% then property may leak capital for a while.

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7% was quite normal at one time, in saying 7% is an overshoot you are making a whole bunch of assumptions you can't really make. You are taking the current monetary conditions as normal, they are so far from normal it is not funny. Take a look at the US, if you shop smart you can get insanely high yields at the moment and it looks like they are going to get better before they get turn down again. Yet you can hardly get capital to buy housing and no one wants to take the opportunity! Depending on the conditions 7% may be no where near enough to compensate the risk. 4% is nuts when you look at the monetary inflation that has occurred!

Give me cheap money and I will show you stability of yield... metro RE yield no where near enough. I beleive the market is beginning to tell you that. Sell it my son and buy gold, you will not regret it! Even Warren had silver until he was forced out of it, he knew it made sense... he was a little early and sold way early but when you are in his position you are a little beholding to the powers that be.

OFF TOPIC... yeah I know

Uncle Festivus said:

There will be more 'shocks' & it is far from certain that the 'issues' will be fixed.

At least they won't be fixed on current income/expense projections, for any country with debt problems ie the usual Euro ones, Japan, & most importantly the US (China too has 'hidden' debt that is going to make llife hard for them too)

For the US to get their house in order there will be need to be recession inducing cuts to gov exp - simple maths. Or a massive increase in revenues. Or both.

It's only a matter of time.

As for Buffet, he was just very good, and lucky, in taking advantage of the greatesst era of monetary expansion the world has seen. Otherwise known as a Ponzi scheme. Like you say, all bubbles burst eventually......this one has gone for over 40 years.

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There is only one fix and the government will fight it all the way! We know that... whatever they call it, it will = mo money! Ben has headed off down a box canyon, the only question is when does he turn around? I bet we head to a new currency, we look to be trashing the reserve right now!

Mr Z said:

I bet we head to a new currency

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Not if, but when IMO. I might run a book on what year this happens, so place your bets right here.

Wagers accepted in Gold and silver only.

Hmmmmmm tough one! It will be like the break up of the USSR, most of the population will wake up one morning and exclaim "stuff me" never saw that coming! It will seem like nothing is happening for quite a while and then all of a sudden bang, changes!

Have you read about the plans that have been put in place for the Amero, a US centered regional currency. I wonder if it will ever rear its head?

http://en.wikipedia.org/wiki/North_American_currency_union

and the conspiracy nuts go wild ---> boo, hiss!!!!

It is actually supposed to have some credence!

Tysonboss1 said:

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.

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Well put, but of course unlike say stocks, where you can calculate value based on measures like ROE, it is harder to determine 'what the value should be' with gold. It's value is highly dependent on pure politics/government action, which can thus make it very hard to calculate. Typical valuation methods for gold involve changes in monetary bases, sizes of government debts and deficits, the noises that come from central bankers, rates of credit expansion/contraction etc. All currently appear to say 'gold will steadily increase in value', except for the state of credit expansion (which is contracting because large numbers of banks overseas are more or less stuffed).

It seems your position is 'its an investment if it has a yield (i.e. dividend/rent/interest), and speculation if not'. I'd say that's fair.

US$ has broken below recent uptrend line.

If it continues through the night expect gold to rise.

howmanyru said:

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

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I choose to view it as a fall in the value of fiat currency, rather than a rise in the value of gold.

Tysonboss1 said:

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.

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The price should rise with the increase in monetary supply.

Tysonboss1 said:

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,

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For gold to be expensive, it would have to cost much much much much much more than it does now. In my own opinion.

There are 7Bn humans on Earth and only 165,000 mt of gold. Now divide the fiat currency value of everything real that exists in the world (land, structures, equipment, etc) by the amount of gold that exists and compare it to the average networth of a person (even in a "wealthy" country such as Australia).

The bottom line is, gold is worth a hell of a lot more than what it sells for now. The only reason it is so low, is we still have fiat currency and it still has not undergone hyperinflation. One of these two will have to change in the coming decade or so.


Call it a difference of perspective to refer to gold as an investment or not; one thing I am adamant about however, is that it's value will be the world very soon.

I do not even hold any gold, I don't think it's the best investment right now as I do not view it as an investment at all. Once a point is reached however, at which I feel that I can no longer invest my money such as to complete with the preservation of value in gold due to rapidly devaluing fiat currencies, I will shift my entire accumulated wealth into gold - and it's price in fiat currency at that time will be irrelevant to me.

Now I could be wrong, but honestly I'm not a very materialistic person so I don't care :

"the price will increase with the money supply"

That's my point though, for nearly a decade gold has increased much, much, much more than the inflation of the money supply.

You also said that gold should be valued at the total sum of every piece of the economy, that's just rubbish. The total value of the money supply is far less than the total value of every thing, the total value of say the earth would be millions of trillions, but this does not mean there had to be millions of trillions worth of currency, the same dollar can be spent 10 times a day.

And as much as the gold bugs like, gold is not going to be the base of any major currency in the future, no world government is going to put themselves in that position,

wayneL said:

Not if, but when IMO. I might run a book on what year this happens, so place your bets right here.

Wagers accepted in Gold and silver only.

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I think we will see $200 big macs before the green back is replaced, I think outside of any sort of American continent version of the euro appearing, or world currency, the chance of new currency is zilch.

Tysonboss1 said:

"the price will increase with the money supply"

That's my point though, for nearly a decade gold has increased much, much, much more than the inflation of the money supply.

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Than inflation or than money supply? "Inflation" stated as CPI is irrelevant as it's not a measure of anything useful.

Tysonboss1 said:

You also said that gold should be valued at the total sum of every piece of the economy, that's just rubbish. The total value of the money supply is far less than the total value of every thing, the total value of say the earth would be millions of trillions, but this does not mean there had to be millions of trillions worth of currency, the same dollar can be spent 10 times a day.

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It's rather because a lot of the networth of the world (eg. housing markets) are highly leveraged, and are owned through debt rather than real capital, and are hence inherently overpriced.

Tysonboss1 said:

And as much as the gold bugs like, gold is not going to be the base of any major currency in the future, no world government is going to put themselves in that position,

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It doesn't have to; it may well come by as a result of a revolution.

Regardless, any new currency that will ever come about will be able to be exchanged with gold.

Tysonboss1 said:

"the price will increase with the money supply"

That's my point though, for nearly a decade gold has increased much, much, much more than the inflation of the money supply.

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and for 25 years before that the price of gold fell against an increasing money supply. Golds price has nothing to do with the money supply per se. I will say it once again --> Golds value relates to the opportunity elsewhere in the economy which is best expressed in real rates (General interest rates less the real rate of inflation). If they are negative, and they are very negative in the US, almost all capital is losing value. Some capital can find returns above the real rate of inflation but much of it will start to seek shelter in tangible assets, the #1 being gold. Banks are turning away capital in the US, they can't lend it, corporations are sitting on capital because they can't use it effectively. There is close to no new opportunity in the economy as things stand and yet the government is still expanding the money supply at a ferocious rate. Do the maths? What would you as Mr Saver USA do? Put it in a bank at close to 0% less fees and charges? Buy bonds that are going backwards against inflation at around 8%? Or buy a tangible asset that has increased at 20% compound in USD and will continue to do so until the US muddles its way out of this hole or just gives up on creating new money. It is a no brainer... it really is!!!! Now should we look a Europe and what is going on there...

Gold is a crisis hedge, the global monetary system is in crisis. The is no near term solution, that they will consider, that will work. There is a solution but it involves far to much pain to be used by any elected government. So they will print mo money!!! Got gold?

Tysonboss1 said:

And as much as the gold bugs like, gold is not going to be the base of any major currency in the future, no world government is going to put themselves in that position,

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That is right, gold could no longer serve a currency for any more than a short stabilization period, and I am sure that no government would willingly choose that. Nor would any rational gold holder want it to, gold has value because it is outside the system. For the value of its position as a globally recognized reserve asset to be maximized it must remain the alternate store of value that is no ones debt. Being tied to any national currency is a bad thing for gold and it seems is view as a bad thing for the currency ---> note the actions of the Swiss recently! The worlds currencies are in what is known as a competitive currency devaluation, basically it becomes a negative feedback loop. Typically it also leads to a few other nasties following in its wake but thats all a bit gloomy so lets not go there.

Starcraftmazter said:

Regardless, any new currency that will ever come about will be able to be exchanged with gold.

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Same with any good or service produced buy the companies and assets I own.

If there was a new currency or even if gold did become the currency, My vairous businesses and assets i own would simply start accepting it as payment.

price action still not looking particularly flash, sub 1500 coming up imo

Tysonboss1 said:

And as much as the gold bugs like, gold is not going to be the base of any major currency in the future, no world government is going to put themselves in that position,

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Do you even have any idea what you are talking about?

Latest ConFinStat from the ECB October 2011.


Hint, if you can't find the gold, it's number ONE on the list in the assets column.

What about Euro reserves, since the inception of the Euro, as measured by the quarterly Mark To Market ECB ConFinStat?



H/T FOFOA.

sinner said:

Do you even have any idea what you are talking about?

Latest ConFinStat from the ECB October 2011.


Hint, if you can't find the gold, it's number ONE on the list in the assets column.

What about Euro reserves, since the inception of the Euro, as measured by the quarterly Mark To Market ECB ConFinStat?



H/T FOFOA.

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I didn't say that reserve banks wouldn't hold it as an asset.

I said it would not be the base of a major currency, eg Printing note's that can be redeemed for a fixed amount of gold or silver like they did back in the day.

This statment from Bernanke sums it up.