Gold Price - Where is it heading?

[Value Collector]

Just a bit if an interest..

So you are not actually making any money from gold falling every Monday?

Into silver coins these days, going to be worth a fortune soon

Unless they are already ready worth close to a fortune I don't like your chances. As I have explained previously, Holding a commodity is not a path to riches.

if the world does not blow up of course.

So watching the gold shuffle of great interest

All commodity prices fluctuate, gold and silver are no different. Holding any commodity longterm is not going to make a fortune.

Can you name anyone in history who made a fortune simply holding gold or silver.

I mean can you name anyone who bought say $10,000 of gold and had it grow into a fortune of say $1Million.

 

[>Apocalypto<]

So you are not actually making any money from gold falling every Monday?



Unless they are already ready worth close to a fortune I don't like your chances. As I have explained previously, Holding a commodity is not a path to riches.




All commodity prices fluctuate, gold and silver are no different. Holding any commodity longterm is not going to make a fortune.

Can you name anyone in history who made a fortune simply holding gold or silver.

I mean can you name anyone who bought say $10,000 of gold and had it grow into a fortune of say $1Million.

if you bought Gold in 2003 i think you would be laughing atm.

 

[explod]

if you bought Gold in 2003 i think you would be laughing atm.

Yep, and up 38 times since removal of the gold standard by Richard Nixon in 1971.

It real importance is that of preserving equity,land does too, in the case of paper currency collapse. The canary in the cage.

Under the fundamentals of maintaining an orderly market the gold derivatives markets and ETF's are holding it now.

How long will the trumped up GDP, employment and inflation numbers hold it all.

Gold and silver are at a great price for the collectors now in my view.

 

[Value Collector]

if you bought Gold in 2003 i think you would be laughing atm.

If you bought the asx200 accumulation index you would be laughing harder.

 

[Value Collector]

Yep, and up 38 times since removal of the gold standard by Richard Nixon in 1971.

Have you compared that to other investments, I think you would be shocked.

whether you bought a house or a share market index the capital value of the asset would have matched or beaten gold, But when you factor in the income over that time frame, they completely smash gold.

eg. 100 units of an index probably would have matched or beaten the capital growth of the gold, however reinvesting the income into more units each year would have seen the 100 units grow to 540 units.

So to beat other investments, the price of an ounce of gold would have had to go up the same as it did, while your 1 ounce gold bar grew into a 5.4 ounce gold bar.

Do you really find it that difficult to grasp the difference between gold and other assets that compound.

I mean you compared gold's preservation value to land, but you ignore the fact that the rental return on land can be used to by more land. so after 40 years the ounce of gold is still an ounce, but the house has grown into a portfolio of houses, So you can't compare the price growth of gold against the price growth a single house, because that single house is now a few houses.

 

[Uncle Festivus]

Keeping it simple.....and that's before any fees and taxes......the misconception by novices that they are making 'wealth'.

 

[Value Collector]

Keeping it simple.....and that's before any fees and taxes......the misconception by novices that they are making 'wealth'.

]

Well you did cherry pick the time frame well. But check the chart below and you will see if you allocated your funds a either side of your cherry picked date you would have seen a decent gain, or if you simply allocated funds at regular intervals you would have done very well.

As I said you don't seem to understand compounding, please explain how it a lump of metal that just sits there can outperform a basket of productive assets overtime, the fact is it can't.



And that growth is before you factor in using the dividends to purchase more units,

1971 seems to be a date that explode wanted to use as an example, why not calculate the accumulated growth and reinvested earnings of the sp500 from 1971 till now.

 

[DeepState]

Just for interest, I had a look at a basket of goodies from 31 Dec 1991 to present day. The period is long enough to be meaningful and the start date is the one where I can get data across the full universe of assets. The equity markets considered are the three largest: US, Europe and Japan. The commodities considered are the three most commonly quoted: Copper, WTI and Gold.

The dividends payable to US and European investors are assumed to attract 30% tax before reinvestment. It was not worth adjusting the Japanese data. All data has been adjusted to a USD base to achieve commonality. All data has been rebased to 100 at start date.

It's a wash between equity markets and commodity markets over this period. Commodities can outperform 'productive assets'. They have utility. There is nothing in the mechanics of supply and demand that prevents them from increasing at a faster rate than claims on productive assets over any time period.

 

[explod]

1971 seems to be a date that explode wanted to use as an example, why not calculate the accumulated growth and reinvested earnings of the sp500 from 1971 till now.

1971 is a significant date as it is when the US legislated to remove gold backing from its currency. To learn the real significance of this check up "the Von Misers Institute" particularly on the Gold Standard.

Gold is kept as a percentage of a portfolio as insurance in case of currency collapse, ie., the Weimer Republic where unbacked money printing reached a stage where in the end it took a barrow load of it to buy a meat pie. And we have other examples such as Argentina and Rhodesia in more recent times.

This is effectively what is going on in the US with QE and zero interest rates. Money is continually being expanded to stimulate growth and activity. But is has no productivity behind it so is failing and as so the stimulation is increasing exponentially. It is well worth some study in my view as this time the Weimer Republic scenario is now permeating the entire monetary system of the western world. And as China, Russia, India and southern parts of America unite and trade within and outside of our currencies it may be grim indeed and soon.

 

[radson]

if you bought Gold in 2003 i think you would be laughing atm.

Hmm about 8.5% p.a if you had bought and held in 2003 to now... turning 10k into 24.5k USD

haha..umm hmm

 

[Uncle Festivus]

Down again on the open.

All 32 mondays of this year still intact.

They say gold is not money nor manipulated.

Why just Mondays? It's a usual occurrence on the NY open.........I'd bet on it!

Actually I recall that I posted something along similar lines many moons ago - sell before the NY open then buy on the NY close....depending on the general trend.

Look at todays action - up from 1282 to 1296 then monkey hammered by the work experience boys and girls at the various Fed dependencies?



Vertical line is NY open...



Of interest is the resumption of equities leading gold again - good gains in major producers despite general market selling - the bull is back?

 

[qldfrog]

Do you really find it that difficult to grasp the difference between gold and other assets that compound.

VC,
please see below my naive view
while I am well aware of compounding, and the fact owning a gold bar will not bring me anything after a year no baby bullions, owing commodities always means owing an increasingly rarer piece of good

I will get back specifically to gold
but let's use silver or platinium:
rare, getting rarer every year as it get consumed by mankind with sub optimum recycling effect.

Unless technology suddenly allows creation of platinum from thin air with low cost your compounding is defacto generated by the world consumption and the fact it is getting harder and harder to find new resources;

if I could, I would happily store some Brent oil condensed into a suitcase but I can not, so the move toward rarer and more easily storable "precious metals".World consumption is providing yearly expected increase;

Technology can play havoc:
aluminium bar were once precious...And it all collapsed due to a new extraction process

Gold is a bit special as it is not really consummed and has a very high rate of recovery/recycling; but the compounding is linked for gold to the psyche: a bigger and bigger world population which in all cultures see gold as a symbolic achievement status, so every good harvest for a peasant in india, mega deal for a tycoon in china, or just any wedding in western world will see a bit of the "gains" transformed into gold, so inflation adjusting POG should always go up just following the fundamentals.Until world population peaks.

Land/building play the same game and may deliver cash every year but they add costs/work to equation and are easily seizable by all level of governments who all line up to tax you with land tax, rates, capital gain unadjusted to inflation..I mean have you thought twice about that last point?
AND tell you what you can/can not do with it.

Gold today in a printing money at will world, with no hope to ever see interest rate rising (what would happen to these mega debt) seems to me quite a sensible choice
Disclaimer
I do own properties/shares/currencies and commodities

 

[Value Collector]

VC,
please see below my naive view
while I am well aware of compounding, and the fact owning a gold bar will not bring me anything after a year no baby bullions, owing commodities always means owing an increasingly rarer piece of good

I will get back specifically to gold
but let's use silver or platinium:
rare, getting rarer every year as it get consumed by mankind with sub optimum recycling effect.

Unless technology suddenly allows creation of platinum from thin air with low cost your compounding is defacto generated by the world consumption and the fact it is getting harder and harder to find new resources;

if I could, I would happily store some Brent oil condensed into a suitcase but I can not, so the move toward rarer and more easily storable "precious metals".World consumption is providing yearly expected increase;

Technology can play havoc:
aluminium bar were once precious...And it all collapsed due to a new extraction process

Gold is a bit special as it is not really consummed and has a very high rate of recovery/recycling; but the compounding is linked for gold to the psyche: a bigger and bigger world population which in all cultures see gold as a symbolic achievement status, so every good harvest for a peasant in india, mega deal for a tycoon in china, or just any wedding in western world will see a bit of the "gains" transformed into gold, so inflation adjusting POG should always go up just following the fundamentals.Until world population peaks.

Land/building play the same game and may deliver cash every year but they add costs/work to equation and are easily seizable by all level of governments who all line up to tax you with land tax, rates, capital gain unadjusted to inflation..I mean have you thought twice about that last point?
AND tell you what you can/can not do with it.

Gold today in a printing money at will world, with no hope to ever see interest rate rising (what would happen to these mega debt) seems to me quite a sensible choice
Disclaimer
I do own properties/shares/currencies and commodities

If you have all your wealth tied up in a non productive asset like gold, then every meal you eat is going to be diminishing your capital asset, your living expenses will be causing your asset to waste away.

If you have your wealth tied up in productive assets, every year your living expenses can be funded by the produce of the productive assets, so your capital asset (eg farmland, portfolio of companies, realestate etc) does not waste away,

Think about this, if you owned all the gold in the world, and I owned all the farmland, every year you have to shave off some gold from your giant block to live off, where as I just lease my land to farmers and live off the income, In fact given enough time, I would still own all the farm land and end up with your gold block, because you have been buying my produce.

Buffet makes a similar example here.

 

[qldfrog]

a bit tweaked as you use farmland which is, as gold a limited asset, with the advantage of potentially being productive.
You would not do that with shares or paper money (bonds)!

Assuming we all start with the same amount: block of gold value = value farmland
as mankind is discovering, your actual asset if used is degrading; so do not fool yourself, at a time, I will have half my block of gold, you will have some of it but your farmland block will be able to be bought for less than half;
that is assuming no salt raising level or pollution/drought/climate change/rezoning is turning it worthless
You potentially increase your return against a level of risk
You will find many stories of riches and as many of losts in land/real estate..well not here in Australia as we are special!!!!
.
Anyway...
My point was just that any commodity in limited abondance, easy storage with no significant degradation has an in built compounding factor which is far too often discarded.And should return more than inflation.Gold included

 

[>Apocalypto<]

If you bought the asx200 accumulation index you would be laughing harder.

you can make a 100 better comparisons. point was about GLD from 2003 till today has performed very well.

VC what's the argument about? there's no right or wrong each man has his own idea and method to make a $ can't see the whole you're wrong I'm right. end of the day all we're trying to do is make some money off our ideas.

 

[Value Collector]

a bit tweaked as you use farmland which is, as gold a limited asset, with the advantage of potentially being productive.

you could use all sorts of productive assets,

You would not do that with shares or paper money (bonds)!

Shares are just an ownership interest in underlying productive assets, there is nothing stopping a listed company owning farmland, or any other productive asset, infact they already due.

My example would work just as well if I said I owned every company listed on the ASX and NYSE instead of every piece of farmland, the result would be the same, eventually my family would own all the gold as well as the companies, and we could probably buy up all the farmland too.

Bonds would be a wasting asset like gold, the productive component (interest) would have to be added back to the capital to maintain value, So living expenses would be drawing down the capital value.

Assuming we all start with the same amount: block of gold value = value farmland
as mankind is discovering, your actual asset if used is degrading; so do not fool yourself, at a time, I will have half my block of gold, you will have some of it ;

there is lots of scope to improve the farmland of the world, farms are getting more and more productive around the world, not less. In 50years, globally farming will be producing more, But even if the farms didn't increase productivity, the commodities they produce will go up in value and you will need to shave off more gold to pay me.

but your farmland block will be able to be bought for less than half

I would have no need to sell it, you would be a forced seller of your capital asset every meal, I wouldn't have to ever sell my farmland.

If some of it became unproductive due to a drought, it would probably be offset by an increase some where else, and the farmer I lease it to would bare the brunt of that risk, also I could lease it out for other uses.

that is assuming no salt raising level or pollution/drought/climate change/rezoning is turning it worthless

If my farmland was turned worthless, your gold would be worth nothing anyway.

You potentially increase your return against a level of risk
You will find many stories of riches and as many of losts in land/real estate

And gold is risk free??? no body ever just lost a bar of gold to a thief. Even Kerry packer lost some gold, due to a safe cracker stealing in from his office.

Anyway...
My point was just that any commodity in limited abondance, easy storage with no significant degradation has an in built compounding factor which is far too often discarded.And should return more than inflation.Gold included

Only if people want to keep paying more for it, Gold isn't like oil, it's not being used up, each year we just keep piling up more.

 

[Uncle Festivus]

If you have all your wealth tied up in a non productive asset like gold, then every meal you eat is going to be diminishing your capital asset, your living expenses will be causing your asset to waste away.

If you have your wealth tied up in productive assets, every year your living expenses can be funded by the produce of the productive assets, so your capital asset (eg farmland, portfolio of companies, realestate etc) does not waste away,

Think about this, if you owned all the gold in the world, and I owned all the farmland, every year you have to shave off some gold from your giant block to live off, where as I just lease my land to farmers and live off the income, In fact given enough time, I would still own all the farm land and end up with your gold block, because you have been buying my produce.

I have never seen any advise, not from even the most ardent bug, that you should have ALL your wealth 'tied up' in gold.

Gold is an insurance policy against 'untethered' fiat ie arbitrary money creation.

You put forward zero risk propositions in support of your 'productive assets'. So what happen's when you get a 10 year drought, or flood etc plus your holding costs like interest, rates, insurance etc? Recession?

You don't have to shave off your gold holdings to live off - you can lease gold etc

As Apocalypto said, what does it matter as each to his own, but if making a case against holding gold then you should include all the facts, like inflation, costs etc?

Buffet has simply been very adept at playing the excess fiat game chasing assets, and he's probably smart enough to know that it can't go on forever - there's no free lunch. Although now that he's an insider it's in his best interests to keep the ponzi going as long as it can?

 

[DeepState]

If you have all your wealth tied up in a non productive asset like gold, then every meal you eat is going to be diminishing your capital asset, your living expenses will be causing your asset to waste away.

If you have your wealth tied up in productive assets, every year your living expenses can be funded by the produce of the productive assets, so your capital asset (eg farmland, portfolio of companies, realestate etc) does not waste away,

Think about this, if you owned all the gold in the world, and I owned all the farmland, every year you have to shave off some gold from your giant block to live off, where as I just lease my land to farmers and live off the income, In fact given enough time, I would still own all the farm land and end up with your gold block, because you have been buying my produce.

The example is correct. The guy with a fixed asset will starve and die. The farm owner will end up with all the gold and have excess production.

Except that this is not what happens. What happens in the bulk of the economy is that production is multi-factorial. The farm land needs to be tilled. The guy (labour) with the assets works on the farm (capital) even though he doesn't own it. The labourer will initially trade personal exertion for wheat. Thereafter, he will be able to buy more wine than he can currently afford (because Penfold 389 takes a bit of storage time to peak) by bringing forward consumption with gold. Or he can defer consumption and receive gold instead of wheat. The farm owners can either pay the labourer in gold or in kind. If labour gets less available, the price of it goes up (gold per hour increases). As the only labourer, he has massive bargaining power. The farm has no value unless the labourer consumes from it. The labourer will do as much effort as he needs to satisfy is long term consumption. The price for gold will be set at the level which jointly optimizes the needs and relative bargaining position of the labourer and desires of capital. The flow of gold will be stable.

 

[Value Collector]

I have never seen any advise, not from even the most ardent bug, that you should have ALL your wealth 'tied up' in gold.

?

Really? I sure have, I have heard many a gold bug say that everything else is going to zero ( or near to it)

Gold is an insurance policy against 'untethered' fiat ie arbitrary money creation.

So is any real asset, whether that be real estate or businesses etc

It doesn't even have to be a physical thing, Walt Disney spent $2Million dollars creating the Cinderella movie in 1952. If Disney was to sell the rights to Cinderella movie and character today it would sell for $100Million dollars. So great non physical assets will hold real value despite money creation. And not only has the movie held its value it has created (and still creates) Millions and millions of dollars in revenue due to home video and consumer products that allowed Walt Disney to build Disneyland, and fund the production of the other Disney movies.

You put forward zero risk propositions in support of your 'productive assets'. So what happen's when you get a 10 year drought, or flood etc plus your holding costs like interest, rates, insurance etc? Recession?

With the diversification that you can get through the various global share markets, no single drought or flood will affect you.

Rates and insurance etc, are more that covered by the revenue the assets generate, eg I get many dividend checks in the mail, none of my companies have sent me an insurance or rates bill.

Interest? I have no recommended taking on debt.

As Apocalypto said, what does it matter as each to his own, but if making a case against holding gold then you should include all the facts, like inflation, costs etc?

As I said the holding costs are funded by the asset, and real assets have just the same inflation protection as gold. Gold doesn't have any special inflation hedge built into it that other real assets don't have.

I am just trying to point out that the gold bugs are missing some very important investment fundamentals, and the gold bugs (along with other unsophisticated people) tend to think they have the whole investment and capital management thing worked out, "All you have to do is accumulate gold and you'll be rich".

Gold bugs (and probably novice forex, options and equity traders) seem to always have the loudest voice when they spread their misinformation, and I think it can be damaging to the people who listen to their nonsense.

Its shocking to me that the culture now seems to distain sound investment principles, in favour of gambling on forex or filling a box with metal.

Buffet has simply been very adept at playing the excess fiat game chasing assets, and he's probably smart enough to know that it can't go on forever

-

What do you mean? He simply buys great businesses and then uses the revenue they generate to buy more. He rarely even sells investments unless he made a mistake buying it, or the valuation gets silly.

 

[Value Collector]

The example is correct. The guy with a fixed asset will starve and die. The farm owner will end up with all the gold and have excess production.

Except that this is not what happens. What happens in the bulk of the economy is that production is multi-factorial. The farm land needs to be tilled. The guy (labour) with the assets works on the farm (capital) even though he doesn't own it. The labourer will initially trade personal exertion for wheat. Thereafter, he will be able to buy more wine than he can currently afford (because Penfold 389 takes a bit of storage time to peak) by bringing forward consumption with gold. Or he can defer consumption and receive gold instead of wheat. The farm owners can either pay the labourer in gold or in kind. If labour gets less available, the price of it goes up (gold per hour increases). As the only labourer, he has massive bargaining power. The farm has no value unless the labourer consumes from it. The labourer will do as much effort as he needs to satisfy is long term consumption. The price for gold will be set at the level which jointly optimizes the needs and relative bargaining position of the labourer and desires of capital. The flow of gold will be stable.

we don't live in a world where there is just one labourer, and I didn't get rid of the current currency system in my example. I simply gave myself the global farmland and the other guy all the gold, the rest of the economy remains intact and the current money system is still in place.

the other guy wouldn't be spending his gold directly, every month he would just convert some to cash to feed himself and his private army he would need to defend his gold.

That's the other thing, people point out that other real assets have holding costs and risks, as if gold doesn't.

The fact is the more gold you have the more you have to pay to secure it, offcourse you can just hide it in your house for free, but then your risk goes through the roof,

So I don't think you can say gold has no risk, while also saying it has no holding costs.