Gold Price - Where is it heading?

[Billyb]

Re: 1 tonne gold coin

I am not a share price forecaster, I have no idea where share prices will go short term. How ever I do know that over time share prices follow value.

And once normality has returned to the markets a company like BHP can easily trade at 15 times earnings which would bring it's price to $59.00 add to that 5 years of retained earnings invested into more growth projects and share buybacks and BHP's earnings in 5years could easily be over $5.5 / share. at 15 times earnings $82.5 add back the dividends and you will see my target price is easily reached.

Gold on the other hand doesn't grow, So it's value will rise and fall with buying and selling, and it's trading range should edge along with inflation. But there is certainly no reason for it to double again and again and again out side of inflation like BHP will over time.

Based on your calculations it seems that yes perhaps BHP will double in value and yes I agree over the long term share prices do have a tendency to follow value.
However I think the correlation between value and share prices is pretty hit and miss except over the very long term. In the medium term, what is happening to the value investor's account balance when he is holding stocks (or anything) during a bear market because those stocks are good value? Trend followers will be in cash or on the short side.

But how far does it have to drop before you believe the trend is over. Would it have to drop $600.

There is technical criteria or mathematical algorithms that most trend followers use to enter/exit trades, and this varies between traders. There are many trend followers who would have exited gold on this dip but will re-enter when/if their criteria says it's time to do so.

I spose value investors love shares because they are easy to value and quantify future growth; but as we have seen in GOLD over the last decade, Just because you can't think of a VALUE-BASED REASON why it should go up does not mean it wont go up up and UP! (And vice versa also i.e down).

 

[Billyb]

By the way I think it depends a lot on the individuals goals and philosophies, Gold is not going to produce income, only capital gains, so obviously someone who is looking for regular income from their investments is better of elsewhere. However looking at the overall capital returns on gold...I would happily ditch income for that..

 

[Tysonboss1]

However looking at the overall capital returns on gold...I would happily ditch income for that..

I think it would be a mistake to think the next 10 years will be the same as the last when it comes to gold.

If you hold gold over the longterm you can only really expect it to match inflation, offcourse there will be times where it is in favour and it will rise but there will be times when it is out of favour and it will fall.

In 100 years an ounce of gold will still just be an ounce of gold, to think it can go up an up an up outside of inflation forever is a bit silly.

think of a company like Coca-cola, 100 years ago it sold for $2000 because it was just a company that sold syrup to soda fountains in a couple of states, at the time an ounce of gold was just an ounce of gold.

Over the next 100 years, coca-cola's business generated earnings that it paid to investors as dividends and also reinvested back into growing the company.

Today coca-cola manufactures and sells syrup in almost every country on earth, it owns bottleing plants around the world, owns many more brands of soda, fruit juice, bottled water, Beer, canned foods and packaged fruit, it generates Billions in earnings.

All that from a company that sold for $2000. But an ounce of gold is still just an ounce of gold.

If you are after capital gains, a lump of metal has no chance of beating a great operating business over time, Time is the friend of a great business and the enemy of a lousy investment.

Out of all the worlds millionaires and billions, can you name any that started from nothing and became mega rich by simple buying and holding gold, I don't think so.

I think you will find they all got rich by holding operating buisinesses and other assets, not sitting on a lump of gold.

 

[explod]

I think it would be a mistake to think the next 10 years will be the same as the last when it comes to gold.

If you hold gold over the longterm you can only really expect it to match inflation, offcourse there will be times where it is in favour and it will rise but there will be times when it is out of favour and it will fall.

In 100 years an ounce of gold will still just be an ounce of gold, to think it can go up an up an up outside of inflation forever is a bit silly.

You still do not get the idea we are trying to explain.

Gold is a hedge, or insurance if you like as part of ones portfolio to safeguard against the devaluation of money.

http://www.gata.org/node/10623

And this message is getting through.

There are many examples of other uses too, just one, was the Jewish community that did escape Nazi Germany and preserved a geat deal of equity by escaping with gold in thier pockets.

To answer another question you put a few posts back, I also delve in shares. In the last month for example I purchased PXS for .86 cents and sold them on Monday for $1.40 That is from just keeping the ear to the ground and being ready to pounce. As it is in my self managed super fund I only pay 16% capital gains.

I do not own gold myself, but physical silver. My interest in the gold price has been an education for me on currencies and it is an alert system to some degree on my silver.

A sell point for me on gold as a trend foillower would be US$1550. Our recent low was about $1600 so the trend is intact for the time being. It is merely bouncing around the long term up channel.

Many of the points you raise I think, seem to be about trying to convince yourself. Most on the gold thread do not need any convincing that gold on its current course, both fundamentally and chart wise, will continue to rise for the foreseeable future in line with the last ten years trend. Of course if we see a parabolic rise straight up by 70 odd% in four or five days as it did in 1980 we may be ready to sell quick. Its not there yet.

 

[Billyb]

I think it would be a mistake to think the next 10 years will be the same as the last when it comes to gold.

If you are after capital gains, a lump of metal has no chance of beating a great operating business over time, Time is the friend of a great business and the enemy of a lousy investment.

Out of all the worlds millionaires and billions, can you name any that started from nothing and became mega rich by simple buying and holding gold, I don't think so.

I think you will find they all got rich by holding operating buisinesses and other assets, not sitting on a lump of gold.

Gold needs to be treated differently to shares, you buy it when the timing is good and you sell it when the timing is good. You can base the timing on fundamentals or technical criteria but you can't just hold it forever like what Buffett did for Coca Cola.

If you have a rigid Buffett philosophy then gold will not be appealing, which is a shame because clearly it's proven itself to be a profitable investment. Whether it stays that way for another 10 years is another question but the primary trend is still up so I wouldn't be surprised if it continues in that direction for a while yet.

 

[Mr Z]

Inflation, gold, inflation, gold blah, blah, blah... you'd have to be a financially illiterate moron who can't use a calculator or read a chart to think that there is any real connection between inflation and gold.

Return to normal markets.... blah, blah, blah.... LOL--> Yeah that is going to happen right around the end of this gold bull market. This sort of blather just shows you people really don't get what is happening here!

Honestly people don't chat to monkeys about anything other than bananas and sex, they can't make sense of anything else.

Haven't you lot done this a hundred times already? Lets stick to something gold related and interesting and leave the boring old hack anti opinions behind.... been listening to crap like this for ten years now.

 

[Billyb]

All that from a company that sold for $2000. But an ounce of gold is still just an ounce of gold.

A piece of land is still just a piece of land and yet I don't think you would class property investment as a waste of time like you do gold. Because you know with LAND the current value is determined by SUPPLY AND DEMAND and yet with gold you seem to conveniently forget this fact and just treat it like a rock.

 

[Billyb]

Inflation, gold, inflation, gold blah, blah, blah... you'd have to be a financially illiterate moron who can't use a calculator or read a chart to think that there is any real connection between inflation and gold.

It's really quite simple even a moron can get it! Prices going up = bull market = good. All the rest is shenanigans and complexities.

 

[Tysonboss1]

A piece of land is still just a piece of land and yet I don't think you would class property investment as a waste of time like you do gold. Because you know with LAND the current value is determined by SUPPLY AND DEMAND and yet with gold you seem to conveniently forget this fact and just treat it like a rock.

I would never buy a piece of vacant land and just hold it, that would be a waste of time and it is very similar to buying gold.

Offcourse If I built a house on the land and rented it out, then that leasing operation becomes a business in itself, the land is still just a piece of land that sits there and will go up and down but roughly hold pace with inflation similar to gold, maybe the land may improve it real terms in value if population growth causes it to grow say 0.5% to 1% per year outside of inflation.

But the house is an operating business, that throws of cashflow.

 

[explod]

It's really quite simple even a moron can get it! Prices going up = bull market = good. All the rest is shenanigans and complexities.

What if you are not even a moron.

Gold has 6000 years of sentimental value; and sentiment when it really takes hold sends things through the roof. Only have to look at what happened to property the last three years.

The other one is that it is rare. Good land will soon be rare too and a lot of people down here I am talking to are landbanking along with putting some gold away too.

Less that .05% of the world are even thinking of gold yet. Just watch this space when sentiment does start to kick in.

IMHO of course.

 

[Tysonboss1]

Re: 1 tonne gold coin

For a real common example, BHP- Is going to double in price before gold does and it pays an ever growing divvy.

As a case study lets watch it,

Bhp closed at $38.69 Today
gold is closed at $1749 today

Bhp will hit $77.38 ( with dividends added back ), long Before Gold hits $3498.

( IMHO Bhp will hit this level inside 5 years )

Any body want to bet a bottle of Bundy Rum that I am wrong on this.

 

[Mr Z]

Who really cares? They are different investments held for different reasons... if you are thinking its BHP or Gold then you are simply not thinking.

 

[tothemax6]

I think you will find they all got rich by holding operating buisinesses and other assets, not sitting on a lump of gold.

Sure, this is usually the case.
The point it (although I think some in this thread do believe that gold is always a good investment) currently there are a lot of good reasons to expect high inflation in many parts of the world, in the near future. The current widespread use of the printing press by governments to monetize their debts (currently EU, US, Japan, i.e. 'the biggies' are all printing money to hold their debt problems at bay), can only mean heavy inflation. Gold responds much better that stocks to heavy inflation.

I pose the following question to you: suppose you knew a lot about farming and meteorology, and you were pretty certain that the years sugar crop was going to be destroyed, would you refuse to take a futures position on sugar because 'it just sits there', and 'doesn't provide a long term investment'?

 

[Mr Z]

Only problem is that gold is not correlated with inflation.

 

[cynic]

Only problem is that gold is not correlated with inflation.

Perhaps not.

Although I haven't studied PM's as extensively as your good self, would you agree that in recent times the inflationary effects of US currency printing have been a significant contributor to the upward momentum of the gold price?

 

[Billyb]

Perhaps not.

Although I haven't studied PM's as extensively as your good self, would you agree that in recent times the inflationary effects of US currency printing have been a significant contributor to the upward momentum of the gold price?

If gold is correlated to inflation, which country's inflation? The US? A mixture?
To show whether there is a correlation all we need is a graph of the inflation rates (eg from the US) vs Gold price over time. Anyone got that data?

Many would have already seen this graph which suggests gold is not correlated with inflation
http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm

Why does the red line drop drop so significantly after 1980 (note the blue line stays relatively stable during that drop). Clearly gold didn't protect you from inflation during that period.

That website I posted has some really good articles on inflation BTW.

 

[Billyb]

Cumulative inflation rate in the US

http://inflationdata.com/inflation/...flation/Cumulative_Inflation_by_Decade_sm.jpg

Based on the available data it seems Mr Z is right. I keep saying IMO gold is more of a sentiment hedge, it seems to go up when fear is widespread. Often fear and inflation come hand in hand but not always apparently

 

[Mr Z]

Perhaps not.

Although I haven't studied PM's as extensively as your good self, would you agree that in recent times the inflationary effects of US currency printing have been a significant contributor to the upward momentum of the gold price?

It is a part of the equation, a necessary part but it only matters when real rates go negative, from the point that you cannot get a safe rate of return over the rate of monetary inflation gold rises in value. CPI rising (layman's inflation) or real inflation (monetary expansion) on its own is not sufficient to put gold into a bull market. Basically all major monetary inflations have two significant parts. The initial part is when all the positive expansionary effects of the inflation are experienced, during this part it is possible to achieve a real rate of return over the rate of inflation. While this is the case gold is not attractive hence inflation can be on the rise and the price of gold can fall. During the second part of an inflation when growth falters and you enter the stagflationary period (or inflationary depression period?!) the point arrives at which it becomes increasingly difficult to gain a safe return over the rate at which your money is losing value. This is the point that a bull market in gold begins and conversely it ends when a major safe haven currency (reserve or possibly other) offers rates of return that exceeds the anticipated inflation rate approximately one year forward.

Looking at inflation alone will only give you a 50% chance of calling a gold bull market correctly as the real correlation is to negative real rates but admittedly you need decent inflation to send real rates negative. Run the numbers and you will find the inflation/gold price correlation is close to zero as is gleefully pointed out in many anti gold arguments. Historically gold has not been a good inflation hedge, realestate has been better over longer periods BUT when the real rate goes negative the situation reverses. This is the condition we increasingly have around the world today and if we run true to form it should persist for a decade or so more and it should result in a major gold price spike down the line. So far we are running to script for a good 10 years more of this crud... but there is the possibility that policy changes and we take action that will stop it sooner. Don't hold your breath for it!

Thats is my

 

[Starcraftmazter]

Seriously, can nobody answer my question about holding gold? I would imagine at least someone here would have experience with this.

 

[Mr Z]

If you buy more than 10K AUD of physical gold they take your particulars and want poof of ID.