Gold Price - Where is it heading?

[Uncle Festivus]

I still prefer my current method, I just ran the numbers and I am holding 7.8% cash, I am pretty comfortable holding the cash, because I hold it in a way where it has a higher than average interest rate and the interest it generates is actually increasing my property holdings, which in turn will offer more inflation hedged income and capital in the future, but that's probably a story for another thread.

So what rate are you getting? If it's a term rate then it's not very liquid is it?

 

[Value Collector]

You don't have to identify any body.

Then how do you know the action is being caused by "people with real understandings"? How do you separate that out from times the market moves on false understandings?

You watch the action and you put it together from that.

that's what I thought, your just watching the market action and linking it to what ever is happening in the news.

It's not always possible, mostly not.

Sounds like random chance may give the same result.

the reason I am pointing it out is that this sort of thing happens in the media all the time, the market moves one way or another, and then the media forces the analysts to come up with reasons why it happened. It's ends up with market analysts just making up reasons for the moves that may or may not have anything to do with it, two days later another opposite move happens and they claim something else.

Many people confuse correlation (things happening together or in sequence) for causation (that one thing actually causes the other to happen). Sometimes correlation is coincidental, or it may be attributable to a common cause.

 

[DeepState]

I still prefer my current method, I just ran the numbers and I am holding 7.8% cash, I am pretty comfortable holding the cash, because I hold it in a way where it has a higher than average interest rate and the interest it generates is actually increasing my property holdings, which in turn will offer more inflation hedged income and capital in the future, but that's probably a story for another thread.

Gold's atomic number is 79. This is a prime number. Cash does not have a prime number, hence gold is special. Gold melts at 1,064 C and won't become gooey in your pocket, even on a hot day.

To continue...If you substitute your cash for productive assets and, over time, these produce a return higher than you are getting for cash, this difference accelerates your ability to acquire property which enhances your overall position as you have argued. The assets applied to increase your property holdings can come from income or capital growth as, once again, it is the total return that counts. So you are essentially buying more property with another productive asset than you would with cash at bank or via some sort of reasonably priced offset account.

The way you phrase this seems to imply that you are leveraging property because I can't make sense of a $80k annual expenditure and 7.8% cash exposure covering three year's expenditure that increases property via interest payments otherwise. However, there may be another explanation that is not evident to me right now.

If 7.8% is actually on the gross assets rather than net assets, depending on the amount of leverage you are talking about, "cash" might make sense given your ability to tolerate swings in asset value are actually less than if the 7.8% is over net assets.

Obviously you have an affinity to cash. It may not be the optimum thing to do in terms of the actual circumstances you are in (if the 7.8% is on net assets), but it gives you psychic benefit (that's not a derogatory thing, but a real and valid concept). Just be aware that's what is actually going on. If it works for you, that's great. As before, you have considered a lot of things and will make your own way. It's not like what you are doing is somehow stupid. It's just possibly not optimal in the sense of a purely financially oriented perspective (although if you were discussing your situation as if you did not have leverage and actually do, I would change my statements if the position was materially different). This 'optimal' concept might actually do worse than the approach you are adopting. It just has a higher chance of meeting your needs. Nothing is certain. Further, there is apparently more to life than finance - but I'll need to see the formula before I believe that nonsense.

 

[Value Collector]

So what rate are you getting? If it's a term rate then it's not very liquid is it?

It's not a term rate, its a liquid cash account, I can deposit or withdraw the cash anytime I want only condition is the minimum deposit or withdrawal is $500. The interest earned is 5%, which is diverted into my property portfolio where it will be protected from inflation and produce further cash flow with a compounding effect.

Basically it's an interest offset account linked to my property portfolio.

I own 3 investment properties worth about $1.5Million, I only owe about $350,000 on them, so they are completely cash flow positive and are paying them selves off, My interest rate is 5% on the investment loan I have on them.

But I have an interest offset account linked to my loan, So I sit my cash savings in my offset account so any funds I have there are reducing the total amount my interest on my loan is calculated at. eg if the loan is $350,000 but I have $220,000 sitting in the offset account, the daily interest is calculated as if the loan account only had $130,000 in it.

So it basically means my cash savings are earning 5% interest, but instead of me getting that as cash in the hand, it is just helping to reduce my principle and interest loan faster, so it's building capital in my property portfolio that as I said will offer a natural inflation hedge and compounding cash flow.

 

[Value Collector]

The way you phrase this seems to imply that you are leveraging property because I can't make sense of a $80k annual expenditure and 7.8% cash exposure covering three year's expenditure that increases property via interest payments otherwise. However, there may be another explanation that is not evident to me right now.

If 7.8% is actually on the gross assets rather than net assets, depending on the amount of leverage you are talking about, "cash" might make sense given your ability to tolerate swings in asset value are actually less than if the 7.8% is over net assets.

Ok, I am not sure what's causing you the confusion, let me explain.

My cash holding, represents 7.8% of my total net worth. at the moment I have about $200K in my cash account.

My net worth is made up of Property, Aussie Shares, a couple of International shares. I didn't include my home (I know it's normally correct to include it, but generally I don't) and I didn't include a business interest I have, because I am not sure what I could sell it for or if it saleable and it would probably be worth less than 100K anyway.

My income is from dividends, property cash flow, a small monthly pay out from my business interest, and profits from my options account.

the property cash flow is reinvested to reduce the property debt. The dividends, options profits and
business income go to my cash account, when more than three years living expenses are there I look to make some investments to reduce my cash holding back under my three year limit.

Obviously you have an affinity to cash.

I don't have an affinity for cash, I just think it's sensible to have some around.

It may not be the optimum thing to do in terms of the actual circumstances you are in (if the 7.8% is on net assets), but it gives you psychic benefit (that's not a derogatory thing, but a real and valid concept). Just be aware that's what is actually going on. If it works for you, that's great. As before, you have considered a lot of things and will make your own way. It's not like what you are doing is somehow stupid. It's just possibly not optimal in the sense of a purely financially oriented perspective (although if you were discussing your situation as if you did not have leverage and actually do, I would change my statements if the position was materially different). This 'optimal' concept might actually do worse than the approach you are adopting. It just has a higher chance of meeting your needs. Nothing is certain. Further, there is apparently more to life than finance - but I'll need to see the formula before I believe that nonsense

The only leverage I have is my property portfolio as I mentioned above, and I have a very small amount just keeping my margin loan open, My margin loan is idle, and basically exists as part of my options stratergy, at various times I write put options on things that are undervalued and I have a $400K credit limit available if for some reason a put option gets exercised and I want to keep the stock, and don't want to run my cash account to low, I always want a minimum of a years living expenses, but as I said I prefer more.

 

[Smurf1976]

Timing is a factor in all of this. There are times when holding gold will be profitable, and times when it won't. Likewise there's a time for property, a generic stock portfolio, bonds and so on.

Right now I'm holding more cash than usual, simply because that's the outcome of my system. It generates free cash flow, and in recent times has done so more quickly than I've been able to invest it into something else. In due course that will inevitably change, and that cash will go into something else. Suffice to say that from a purely personal perspective, I'd be quite happy with a broad decline in the ASX about now.

 

[DeepState]

Ok, I am not sure what's causing you the confusion, let me explain.

My cash holding, represents 7.8% of my total net worth. at the moment I have about $200K in my cash account.

My net worth is made up of Property, Aussie Shares, a couple of International shares. I didn't include my home (I know it's normally correct to include it, but generally I don't) and I didn't include a business interest I have, because I am not sure what I could sell it for or if it saleable and it would probably be worth less than 100K anyway.

My income is from dividends, property cash flow, a small monthly pay out from my business interest, and profits from my options account.

the property cash flow is reinvested to reduce the property debt. The dividends, options profits and
business income go to my cash account, when more than three years living expenses are there I look to make some investments to reduce my cash holding back under my three year limit.



I don't have an affinity for cash, I just think it's sensible to have some around.




The only leverage I have is my property portfolio as I mentioned above, and I have a very small amount just keeping my margin loan open, My margin loan is idle, and basically exists as part of my options stratergy, at various times I write put options on things that are undervalued and I have a $400K credit limit available if for some reason a put option gets exercised and I want to keep the stock, and don't want to run my cash account to low, I always want a minimum of a years living expenses, but as I said I prefer more.

Thanks for the clarification. I developed a cut-down simulation of what has been described. These are very standard assumptions in the industry. If you should choose to disagree with them, the main point of the illustration withstands anything reasonable.

Pre-tax:
Equities return: 9%pa
Property Return: 7% pa
Cash: 4%pa

Equities 'risk': 14%pa
Property 'risk' 8%pa
Cash 'risk': 0% pa

Ignoring other matters as side-issues which aren't important for this point.

Assumed 50/50 holding between property and equities for the fully invested scenario. Assumed 10% cash holding with the rest in risk assets for cash buffer scenario. Assumed 0.5 correlation between equity and property. Zero with cash. Tax rate taken as 30%. Inflation of your consumption basket is taken as 2.5% per annum. You won't deflate your expenses forever. Starting assets taken as $2.5m net.

Simulated over 40 years with 1000 iterations in each case. If you are 60 and your wife is 60, there is a 50% chance that at least one of you will survive to 90. If you are self-funded retiree, you will tend to live a fair bit longer. So a simulation length of 40 yrs is selected for illustration. It would not a wild outcome for one of you to make it to 100 and hence should plan for this possibility to provide some buffer for longevity risk. Again, vary as you wish, the same patterns emerges.

Results:




Fully invested delivers a higher likelihood of having enough money to survive your lifespan. Reducing risk exposure via cash holdings of 10% (or whatever) reduces your chances of having enough money to survive until both of you pass away.

You can vary the assumptions around quite a lot (returns, risks, allocations, correlations), the pattern stands.

Cash is not needed for liquidity purposes. Holding it may seem 'sensible', but it actually acts against your longer terms interests in a probabilistic sense. When you do something sub-optimal, there is another reason for doing it even if it is called 'sensible'. Some may label it 'psychic benefit' or providing some sort of comfort which is contrary to longer term financial interests. It arises for a lot of reasons, but none of them aligns with long term financial goals.

The introduction of gold as an overlay can reduce risk without necessarily underperforming the cash rate used to finance it (some loss might actually be tolerable depending on the diversification benefit obtained). This would increase your chances of meeting your retirement goals in either case.

 

[Smurf1976]

Something I find interesting is the general assumption that gold is a "buy and hold" investment, such that the lack of dividends is a problem. In contrast, there's no shortage of people on ASF actively trading stocks which either don't pay dividends, or which they don't hold long enough to receive a dividend from.

Looking at my own trading of gold, return for 2013-14 was 14%. Not what I'd call spectacular but it beats cash in the bank.

 

[Uncle Festivus]

yes, the EU is doing just fine......

MILAN (Reuters) -- Fiat will temporarily suspend production at its Pomigliano plant in southern Italy from Oct. 16-27 amid weak demand.

Ford (N:F) is to cut production of its top-selling European car in the fourth quarter because of slowing demand in some of the region's key markets, it said on Friday.

The US Fed cut its bond-buying program down to $15 billion a month and indicated quantitative easing will end in October.

Fiat reduces the number of cars (real economy demand) while the fed reduces fiat (pretend bubble economy supply) (Not that they are directly related.....)

Risk on baby!

Since August 1, the Keefe, Bruyette & Woods Bank Index has rallied 5.8 percent, while front-month COMEX gold futures have fallen by 5.8 percent.

Technical strategist Chris Verrone of Strategas Research Partners describes the rotation from gold to banks as "a decent message on risk" in his morning note to clients. As investors worry less about inflation and safety, they're increasing bets on the loan growth typically associated with an improving economy.

http://www.bloomberg.com/news/2014-09-18/a-risk-rotation-out-of-gold-and-into-banks.html

I wonder how the 'risk-on' trade eventuates, including the flight to the 'least dirty shirt' USD?



http://www.advisorperspectives.com/dshort/updates/Market-Cap-to-GDP.php

 

[Uncle Festivus]

Gold is a currency - currency wars just took an interesting turn.

Yen looks to be breaking down, flight to USD....out of everything else.....?

Solid dose of deflation coming up for the global economy, despite CB QE, or perhaps will mean that US QE will be reversed?

Interesting if it were not so serious........

Interesting read -

http://d21uq3hx4esec9.cloudfront.net/uploads/pdf/140920_TFTF.pdf

 

[Uncle Festivus]

Some action.......

The capper back at $1226 by the looks.....

Gold equities surging 4% or so with only a small movement in gold price.....interesting.

More interesting is the mini flash crashes in US equities into (and continuing after) the close.......the Fed tried hard to bounce it but failed, again?

Bonds going bidless?

Hard and soft commodities producer margins getting squeezed.....some will go to the wall.....supply reduction....

Thank you US Fed, Abe, Drahgi and assorted other do gooders......where are the markets??? Where are the bidders???

 

[Trembling Hand]

Interesting read -

http://d21uq3hx4esec9.cloudfront.net/uploads/pdf/140920_TFTF.pdf

Good one

“The problem is not our theory; the problem is that the real world is not responding correctly
to our theory. Therefore the real world is the problem.”

 

[Superb Parrot]

Gold Price - Where is it heading?

North if the AUD keeps sinking.

I am looking to buy some physical gold. Is the Perth Mint still in favour ?

 

[pixel]

Gold Price - Where is it heading?

North if the AUD keeps sinking.

I am looking to buy some physical gold. Is the Perth Mint still in favour ?

Sure is,
and it's the best for more than a thousand miles.
(also the only one : )

http://www.perthmintbullion.com/au/Buy-Gold-Bars/10oz-Cast.aspx?productId=21

 

[sreeve]

Hi all

My interpretation of the gold chart below (weekly, USD).

Gold currently sitting on a significant support line at $1190. The last two occasions the price hit this area in June 2013 and Dec 2013, the price rebounded back to $1250 in a matter of a few weeks (and then onto $1420). Should $1190 fail, then I'd expect at least $1065 to be hit.



~ Scott

 

[So_Cynical]

Gold currently sitting on a significant support line at $1190. The last two occasions the price hit this area in June 2013 and Dec 2013, the price rebounded back to $1250 in a matter of a few weeks

Triple bottom and the chart seems to have an element of roll over about it with the lower highs over the last 18 months, i don't think support will hold.

 

[qldfrog]

the way ebola is playing may change all the nice graph analysis work for gold
75% probability to reach europe was the conclusion of a report..then...?

 

[So_Cynical]

the way ebola is playing may change all the nice graph analysis work for gold
75% probability to reach europe was the conclusion of a report..then...?

Unless it mutates and becomes transmissible by air i don't see Ebola as to big a deal in developed country's, 3rd world where people are living 3 and 4 to a room, are uneducated and suspicious of White people in coats etc is another story...the HK protest next step is a more likely POG price driver.

 

[Bintang]

Harvey Organ blog site seems to have vanished from the internet. Does anyone know what has happened?

 

[Joe Blow]

Harvey Organ blog site seems to have vanished from the internet. Does anyone know what has happened?

It seems that Harvey's blog was deleted due to a Court Order: http://jessescrossroadscafe.blogspot.com.au/2014/10/harvey-organs-gold-and-silver-blog-have.html

I'm always amazed when people put their blogs on Blogger or Typepad and allow large companies to control their content. A domain name is $15 a year and you can find a good host for $10 a month or less, maybe a little more if you have a lot of traffic.

That's a very small investment to make to control your own content.