Gold Price - Where is it heading?

[Value Collector]

On the Topic of Disney, Can someone work out how much Money The Walt Disney company would be worth if they had Sold the Mickey mouse character in 1928 and bought say $50,000 of gold instead of continually reinvesting and compounding those funds into other productive assets.

Because the Walt Disney company is worth more than $160 Billion today, not counting the billions paid out in dividends over the years, and that's only because they reinvested profits to create or buy productive assets.

 

[DeepState]

1. 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.

2. 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.

3. 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,

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

1. I couldn't be sure from the context. It implied that one guy had only gold to offer and you owned all the farmland and that was all that mattered in the economy. So, I am going to assume now that we are in the actual economy with the exception that you own all the farmland and one guy (with private army) owns all the gold. He must consume from your farmland directly or indirectly.

2 and 3. Got it. Except that he could hold it all via ETF, PMGOLD type of thing, or essentially lease off central banks spread all over the world as it currently is. No armies there, that are visible to me anyway. There is also a cost to storing USD 8tr in cash (whether under you house or electronically) or having to defend the entirety of the farmland in the world which is essentially a monopoly by definition over a vital resource (more vital to life and death than gold).

4. I never said gold was riskless. I have said it is a form of currency ('currency in waiting'), has been a form of currency, acts as a store of wealth and is a commodity. None of that is riskless.

So, to expand the gold vs productive asset example where the guy with the gold eventually exhausts his gold supply in favour of the guy owning a vital source of production (you)... if the guy doesn't do anything productive at all (ie. earns no income whatsoever) he will run out of gold in favour of the rest of the population and, if you only accept gold as payment for your goods, you will come to own all of it. It is just a question of time if you can protect your franchise. No problem with this example. It would be true if the guy was, say, retired and held his entire nest egg in gold.

By the same token, if all this guy has was cash, the same outcome would occur. All his cash would effectively end up in your massive pocket. In that respect, gold and cash serve the same purpose and have the same properties. You seem to be prepared to accept cash or gold (in some form) as payment. This has to be so if you are to own all the gold at some stage. It is thus money for any real purpose between you and the guy, albeit intermediated. He should just pay you in gold at the farm gate, in reality.

For your example to hold, gold is serving as a form of currency. If no-one else thinks of it that way in our economy, then you could reasonably argue that worn-out, brown shoes could also serve as currency. Currency is what people think is currency.

If you are to end up with all the gold in the world, but the guy chips his gold into cash to buy your stuff as you say, then gold stays in circulation. If he needs to convert to cash to buy stuff and, as you believe, gold is not a monetary asset at all but a commodity like others, when you acquire all the gold, no-one values it as a monetary asset because it is no longer in circulation, you are presumably not selling rights over it at a gold backed currency, and the value is essentially indeterminant...it's worth whatever you want to trade it with yourself. To others, it is worth real jewelry and industrial value only...and you trade at far far below current levels given 80%+ of the demand would vapourise. Gold would approach such values as it become less traded and thus less of a monetary asset. It would actually suffer a form of hyperinflation. But I don't think this has ever occurred, whereas fiat has suffered it many times.

Ironically, if you actually wanted to get value for your gold, you would release it progressively as if a mine but whose resource base is fully known and fixed. Then it would become a proxy currency again with time and the value of it would inflate far beyond that for industrial purposes.

By the same token, if the guy had all the rights to produce holes in the ground in all the world and has the machine called 'productive hole producer asset', but the value of his production cannot fed him at the margin, you will see two productive assets in play. But one will dominate, the guy will starve as per the gold example and you will obtain the total value of production from his output prior to expiration. Having productive assets on one end of the transaction doesn't mean anything for the case against gold or currency. You can end up with everything that is produced by another productive asset as well. Everything is relative. Currency is a relative concept. Gold is as well.

Will gold always underperform a productive asset? If the asset is sufficiently profitable relative to capital expended in order to overcome the supply demand dynamics of gold, then absolutely. Except..you only really know that an asset has been productive after it has produced. When over 90% of new businesses don't make it past the first year, at least some choices of productive assets and claims thereon are probably a worse bet than cash at bank or gold. Of course, you'll be able to point to those which have done well. But they survived. Perhaps your stock selection is sufficiently strong that you can jump from asset to asset successfully as they pass production peaks and move towards oblivion. If you do believe that, forget about gold!

Alternatively, why not pick a productive asset where you could lay a legally enforceable claim to the earnings from 1500BC. Are more than 10 still with us? Gold is. How about 200 years ago? How many still alive? The above concepts have already been discussed extensively in this thread. I'll refrain from adding further to it.

 

[DeepState]

Of course, you'll be able to point to those which have done well. But they survived. Perhaps your stock selection is sufficiently strong that you can jump from asset to asset successfully as they pass production peaks and move towards oblivion. If you do believe that, forget about gold!

Alternatively, why not pick a productive asset where you could lay a legally enforceable claim to the earnings from 1500BC. Are more than 10 still with us? Gold is. How about 200 years ago? How many still alive? The above concepts have already been discussed extensively in this thread. I'll refrain from adding further to it.

Couldn't help it.

The chart below is a comparison of the performance of NASDAQ stocks as per the official index versus a reconstructed index based on companies that were actually present in 2008. Both are rebased to 100 at outset. This is an example of how significant the survivorship bias is. It is larger over longer time horizons. Ex post comparisons of gold vs other assets should be careful to avoid such issues. NASDAQ is just an example, but the issue impacts indices of all stripes, mutual funds, bond markets...

 

[Value Collector]

The chart below is a comparison of the performance of NASDAQ stocks as per the official index versus a reconstructed index based on companies that were actually present in 2008.
View attachment 59237

That may be very misleading, How is it accounting for mergers and acquisitions.

Is it simply completely excluding any company that wasn't present in 2008?

How is it accounting for take overs etc, Because when I have look into examples such as this in the past, eg someone once used the dow as an example, they simple compared a list of names and said " see half the names are missing " and they did their calculations as if all the missing names had just gone bankrupt and went to zero. When in fact the majority of missing names had either been taken over leading to a substantial pay out to shareholders ( not the "gone to zero" used in the calculation) or had merged with other companies.

If you haven't accounted for mergers and acquisitions, I think your example is worthless.

 

[skyQuake]

Why not compare against the actual the S&P ETF (SPY)?
That will smooth over the issue of survivorship

 

[Value Collector]

Why not compare against the actual the S&P ETF (SPY)?
That will smooth over the issue of survivorship

Is that an accumulation index?

If not you would have to factor in the reinvested distributions.

 

[skyQuake]

Is that an accumulation index?

If not you would have to factor in the reinvested distributions.

The ETF matches the index pretty closely, so its no stretch of the imagination that the Accum index would be a pretty good indicator of actual returns.

SPY (ETF) vs SPX (Index)

 

[DeepState]

That may be very misleading, How is it accounting for mergers and acquisitions.

Is it simply completely excluding any company that wasn't present in 2008?

How is it accounting for take overs etc, Because when I have look into examples such as this in the past, eg someone once used the dow as an example, they simple compared a list of names and said " see half the names are missing " and they did their calculations as if all the missing names had just gone bankrupt and went to zero. When in fact the majority of missing names had either been taken over leading to a substantial pay out to shareholders ( not the "gone to zero" used in the calculation) or had merged with other companies.

If you haven't accounted for mergers and acquisitions, I think your example is worthless.

Good point.

But it does include mergers and acquisitions. The companies in the higher line features the headline tickers as at 2008, wound back. They do not benefit from being subject to a take-over, because they moved forward and would be the merged entity that survived or the acquirer as opposed to the recipient of a major pop up as an acquisition target. Not quite worthless methinks.

I don't have the data for Disney. But I do have it for Lehman, Napster, ....

 

[Uncle Festivus]

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.

No, not rich. If you have some gold then maybe you will retain some of your wealth when the crunch comes.

'Unsophisticated'?? LOL you can't get any more unsophisticated than a property investor - the whole system is rigged in their favour.....even single mums on A Current Affair can be property barons....on the contrary, I think as more and more people are educated in financial matters there will be more distrust in 'the system' as per the cash hoarding report recently.

AUSTRALIANS are “hoarding” an estimated $10 billion “under the bed” according to a landmark report revealing the extent of hard currency being removed from the nation’s cash economy.

I think you are making the mistake of several who have gone before you on this thread, and that is making assumptions. I have equities and property, although I have just sold the last of my IP's. I've never said not in invest in them. I've never said gold is a better investment. You were the one making the case for equities and property V gold as an investment? I like to diversify my 'money' so as to not have all the eggs in the property or superannuation basket.

The point will be, again, as was shown during the start of the GFC (which is still going on by the way) that your (our) investments in property and equities will be 're-valued' again. Cash in bank is essentially an unsecured liability according to the banks. They don't have to give it back to you if there is a run.



Over the years there have been a few most worthy gold 'detractors' on this thread who predict gold's demise only to silently slink off into the cyberspace when they are proved wrong.

 

[Value Collector]

No, not rich. If you have some gold then maybe you will retain some of your wealth when the crunch comes.

.

I am happy to ride out any bumps, I would rather a bumpy 10% return over the years than a steady 1% return after inflation.

Over the years there have been a few most worthy gold 'detractors' on this thread who predict gold's demise only to silently slink off into the cyberspace when they are proved wrong

What do you mean????

Gold is down over 30% from its high about 2 years ago, that's without generating any income. So it's failed as a store of wealth over that period, Failed as an inflation hedge and failed as an investment.

How have they been proved wrong?

and if this big crunch fails to come, and the global economy just keeps slowly recovering, even the gold bugs will slowly lose faith and gold will drift side ways like it did for 20 years in the 80's and 90's failing even its most basic job of being an inflation hedge.

 

[Smurf1976]

Holding gold is like having home and contents insurance.

A complete waste of money if everything goes well, a financial life saver if it doesn't.

 

[explod]

I am happy to ride out any bumps, I would rather a bumpy 10% return over the years than a steady 1% return after inflation.




What do you mean????

Gold is down over 30% from its high about 2 years ago, that's without generating any income. So it's failed as a store of wealth over that period, Failed as an inflation hedge and failed as an investment.

How have they been proved wrong?

and if this big crunch fails to come, and the global economy just keeps slowly recovering, even the gold bugs will slowly lose faith and gold will drift side ways like it did for 20 years in the 80's and 90's failing even its most basic job of being an inflation hedge.

Some of the housing bumps in the US and some in Europe were up to 80 percent down. In the GFC many lost more than 60 percent. If your good on your stop losses fine, and can get out of property very quickly you may be well prepared.

As far as the big crunch you should take the blinkers off and focus on some in depth news away from Reuters and the Murdoch bias and gain some balance. Don't worry, Sorros and Buffett certainly do that and is why they remain ahead of the pack nice and steady as she goes.

Have an objective look at the 13 year gold chart and look at the mean, it's preserving money against the ravages of inflation. Also objectively every few days spend 15 minutes reading lead articles on Zero Hedge and Goldseek.

Anyhow, a very good evening to all.

 

[Value Collector]

Have an objective look at the 13 year gold chart and look at the mean,

I see a good rise that was probably just caused mostly by a 20year period of sub inflation performance prior to the rise, so the "excellent" gains were just delayed inflation, it then probably over shot because of speculation and fear and has since corrected and landed 30% below it's peak.

I can't see another long period of solid gains happening unless there is another 20year period of stagnation.

Like anything, really strong growth in any asset class is usually either delayed growth because of a prior period of stagnation, or borrowed growth from the future, leading to future stagnation.

it's preserving money against the ravages of inflation.

we had heaps of inflation in the 80's and 90's and gold went no where, how was that protection?

I know after that 20 year period it has a decent run, but that's hardly a useful way to protect against inflation, especially when the productive asset classes had the same protection from inflation while also producing income.

And it surely hasn't preserved anyone's money if they bought in at the peak when you were spruiking that it would soon hit $3000.

 

[Value Collector]

I don't have the data for Disney. But I do have it for Lehman, Napster, ....

well the most you could have lost investing in those companies was 100%, however the compounding affect of good productive asset means you can gain many 1000's% when an excellent stock is selected.

so a diverse basket of intelligently selected assets, will always outperform and cover any individual mistake where you lose 100%.

eg. if you own 11 stocks and 10 grow at 10% and 1 suffers a 100% loss, your portfolio doesn't suffer a loss, it holds its value. and if a few of them are top performers, you will smash the index and smash gold many times over.

 

[Uncle Festivus]

and if this big crunch fails to come, and the global economy just keeps slowly recovering, even the gold bugs will slowly lose faith and gold will drift side ways like it did for 20 years in the 80's and 90's failing even its most basic job of being an inflation hedge.

Recovering?? Have you had a look at the EU lately? Still thinking of their own QE as they slowly sink back into recession again. Unemployment - no recovery - even the US goose their figures, the real rate is north of 10%? China is slowing - they need 7% growth just to stand still....

Interest rates - a big fat zero for 6 years now - hardly saying a recovery is underway?

Take out the government portion of the GDP calcs and the US has essentially been in recession since 2000.

I guess as long as the CB's keep doing the QE forever it will appear that all is 'normal' again, for the average punter at least.

Your equities and property have been riding this QE wave, nothing more, and will revert to mean after overshooting when the confidence game comes undone under the burden of debt.

This is a structural deterioration in the mechanics of money.

 

[Value Collector]

Recovering?? Have you had a look at the EU lately? Still thinking of their own QE as they slowly sink back into recession again. Unemployment - no recovery - even the US goose their figures, the real rate is north of 10%? China is slowing - they need 7% growth just to stand still....

Interest rates - a big fat zero for 6 years now - hardly saying a recovery is underway?

Take out the government portion of the GDP calcs and the US has essentially been in recession since 2000.

I guess as long as the CB's keep doing the QE forever it will appear that all is 'normal' again, for the average punter at least.

Your equities and property have been riding this QE wave, nothing more, and will revert to mean after overshooting when the confidence game comes undone under the burden of debt.

This is a structural deterioration in the mechanics of money.

I think your looking into things to far, every company i own reported increased profits last financial year. Infact disney reported more profit in the first 9months than they had in any 12 month period ever.

In my property rents are the highest ever, just did a rental increase actually.

Is the EU economy going to stop people buying capilano honey for breakfast? Are farmers going to stop buying fertilizer? Are people going to stop consuming disney media content and watching sports? Are people going to stop having hot showers? Or eating their sushi for lunch?

The answer is no, and as long as that's the case my portfolio will perform well over time, there is always negative things happening, last century there was 2 world wars, a nuclear arms race, energy shocks, rise and fall of communism, and many other things, but through out all of it it was a mistake to hold gold longterm,

 

[DeepState]

well the most you could have lost investing in those companies was 100%, however the compounding affect of good productive asset means you can gain many 1000's% when an excellent stock is selected.

so a diverse basket of intelligently selected assets, will always outperform and cover any individual mistake where you lose 100%.

eg. if you own 11 stocks and 10 grow at 10% and 1 suffers a 100% loss, your portfolio doesn't suffer a loss, it holds its value. and if a few of them are top performers, you will smash the index and smash gold many times over.

So...if you happen to buy a portfolio of stocks that do well, you do well?

I've already put up a chart showing the extent which hindsight bias affects things. Everything looks easy in hindsight. But, let's do another round. Given the model considered here is one where we can take a few write-offs which will be covered by the unlimited upside argument, let's look at the doyens of that style: the venture capitalists. In aggregate, most people don't regard them as unintelligent, but your opinion can differ.

Here is their performance:



Not so flash. Perhaps the process of intelligent portfolio selection is a little harder than quoting earnings increases for the last FY for stocks in the international market purchased from June 2014. What matters is the next 10+ years. The NASDAQ chart demonstrates just how big the gap is between what looks obvious with hindsight and what actually happens. I guess the IQ test results are pending. I actually hope it goes well for you.

Anyhow, my position in gold is that it is an alternative currency which has some industrial purposes and which is used as a store of wealth. To me, it is an alternative to USD deposits or EUR deposits. It actually isn't the kind of investment we are talking of, like Disney. It is money. Money can do better than productive assets from time to time. In some situations, a lot better. Over the last 20 years, it's a wash. Over an extended period of time, no buy-hold portfolio will outperform gold. No franchise, except for the Catholic Church, survives that long. So the onus is on intelligent asset selection. Everyone thinks they are above average, but the outcomes mostly don't support the belief.

 

[Uncle Festivus]

I think your looking into things to far, every company i own reported increased profits last financial year. Infact disney reported more profit in the first 9months than they had in any 12 month period ever.

In my property rents are the highest ever, just did a rental increase actually.

Is the EU economy going to stop people buying capilano honey for breakfast? Are farmers going to stop buying fertilizer? Are people going to stop consuming disney media content and watching sports? Are people going to stop having hot showers? Or eating their sushi for lunch?

The answer is no, and as long as that's the case my portfolio will perform well over time, there is always negative things happening, last century there was 2 world wars, a nuclear arms race, energy shocks, rise and fall of communism, and many other things, but through out all of it it was a mistake to hold gold longterm,

Your Disney thing relied on a few one-offs, namely a movie. And yes, the EU recession does stop people from buying things <shock horror>-

Disneyland Paris - The struggling European resort had higher operating costs and lower attendance, hotel bookings and special event revenue.

You will probably keep doing all right as long as the cost of credit stays at zero I guess? The trouble is, the CB's cannot 'normalise' now without causing an instant recession because of debt leverage.....

Do you think you will fit through the exit when everybody else tries to leave the party??

 

[Value Collector]

So...if you happen to buy a portfolio of stocks that do well, you do well?

.

yeah, they don't to all be excellent, just an average portfolio minus the obvious dogs.

Everything looks easy in hindsight.

I never said it was easy, it takes education, time and skill to be able do avoid the dogs. I think the gold bugs are offering the "easy" route, "All you have to do is buy gold"

In aggregate, most people don't regard them as unintelligent

I never said you had to be intelligent, I said a portfolio of intelligently selected assets. Lots of intelligent people do dumb things, especially in the venture capital side of things. There is a reason Warren Buffet is not a venture capitalist.

I guess the IQ test results are pending.

I have never said I have a high IQ, But I do believe I have learned to out perform many people with much higher IQ's than me.

Anyhow, my position in gold is that it is an alternative currency which has some industrial purposes and which is used as a store of wealth. To me, it is an alternative to USD deposits or EUR deposits

.

Well, I don't like to hold more than 3 years living expenses in currency, to me it's much better to hold it in a productive asset if the time frame is a longer period than that, and if the period is shorter, currency movements are a greater risk than inflation, so I want to keep it in the currency I intend to spend eg AUD. So even if I give you the "Gold is currency" argument, your still at risk of the currency (eg gold price) dropping and losing spending power, and you wont get the interest earning you can get on AUD.

as I pointed out for most of the 80's and 90's gold didn't keep pace with inflation, so was a pretty useless inflation hedge, infact AUD was a better inflation hedge at the time simply due to the interest compounding.

 

[Value Collector]

Your Disney thing relied on a few one-offs, namely a movie. And yes, the EU recession does stop people from buying things <shock horror>-


??

One off's??? Well I guess you can say Disney has a history of these "One Off's", they seem to produce "One Off's" quite regularly, this year has seen 4 of them.

But the movie studio only makes about 20% of their profit, and as I pointed out even "one off's" such as Cinderella still generate millions of dollars of profit each year, and has done sine the early 50's.

Do you think you will fit through the exit when everybody else tries to leave the party

I wouldn't want to leave, the GFC was the best thing that ever happened to my portfolio, I am comfortable with the quoted value of my portfolio going down, as fun as it is when my shares double or triple, I actually enjoy the down turns a lot more, because that is when I make my best buys, that will lead to the next round of doubling and tripling.

I can't pick market movements, but I can recognise good businesses, and I can value them, and down turns are when the good businesses are cheapest.