Gold

[brewer12345]

Focu$ed,

I both admire and fear for anyone with "unshakable faith" and who has "put...money where my convictions are...".  No doubt you have done well and you should be congratulated for being in the right place at the right time.

That said, I can't help noting that if you change the two phrases I highlighted in bold in your quote above to "tech stocks", you will have rolled back the clock to 1999.  But since you are convinced it's different this time, I wish you only the best in your pursuit of wealth in the commodities and metals markets.

FWIW, Ithink "unshakeable faith" is a great help to a diligent investor. Many times I have not had sufficient conviction in what my research was telling me and I have regretted it. My biggest gains have come from doing the work, knowing I was right, and holding on through thick and thin.

Still working on that sell discipline.

 

[d]

seems to me the last time there was this much excitement about gold was around 1980 ... just before it peaked ... and few were much interested when it was below 300 nearly 20 years later

 

[REWahoo]

I enjoy a lively debate as long as it doesn't degenerate into name calling, and we are not doing that.

I'm in total agreement. My issue is that many of us here (not all, for sure) are from the asset allocation school of investing and you appear to be chasing the hottest trend and taking on more risk that I would be comfortable with. I didn't get here (to FIRE) by putting most of my eggs in one basket and I fully admit I've sold too early on several investments. But I saw several co-workers take a huge hit in the dot-com bust and I'm very sensitised to situations that appear to mirror that sad time.

Everyone's risk tolerance is different, mine is obviously much lower than yours. That's not an argument, just a recognition that you and I don't have the same approach to investing. You have some strong convictions, but some of us don't share your faith that there is substanital further growth in gold and commodities. There could be, but seeing where they came from....?

I was sincere in my earlier post when I wished you good luck, and I also happen to think you (and all of us, for that matter) will need it.

 

[wabmester]

Somebody mentioned a "sage fundamental analysis" of gold.    Could I get a pointer to that?

My naive understanding of the metal is that the price fluctuation is mostly a function of inflation and the dollar's exchange rate.

If we look at inflation over the last two years, it has been around 3-5%.

If we look at the dollar over the last two years, it is virtually unchanged against the Euro.

If we look at gold over the last two years, it has almost doubled.

What's wrong with this picture?

 

[cute fuzzy bunny]

Thing is, gold USED to mean something in the greater context of investing. But while that time passed, the psychological implications of what used to be didnt go quietly.

I owned some precious metals (in fairly small amounts), simply because in certain economic conditions and as a reaction to some specific fears, people will buy them and run the price up. And vice versa.

When it doubled in a year, I sold, took my cash, and I'll wait until the rest of the neo internet stock buying types and the bugs walk back out. Then I might buy my 3% stake back in.

A lot of people got rich by selling too soon.

 

[REWahoo]

$600 gold: Want in? Think twice

By Rob Kelley, CNNMoney.com staff writer

As gold futures surged past the $600 an ounce barrier Thursday, it was easy for investors to forget that in 1999 gold was stuck around an anemic $250 an ounce.

...and fasten your seat belt...

Few investment vehicles have seen as much shakeup over the past 25 years as gold. In 1980, it touched $873 an ounce after rampant inflation engulfed the nation, but then plunged to a low of $254.80 in August 1999.

And these huge long-term swings are now being complemented by larger day-to-day shifts.

"We're seeing price swings that we haven't seen in decades. We used to see a $6 range in gold over a week, and now we see it in a single day," said Quinn. "The gold market is really going to be in play over the course of the year."

For investors, that means that they should be prepared for the possibility of major short-term losses.

"Not everybody could handle losing 40 percent in one year," said Wallace. "Most people probably don't need an investment in precious metal funds."

http://money.cnn.com/2006/04/06/pf/gold_investing/index.htm

 

[maddythebeagle]

hmm. the poll results are almost split 1/3 for each....maybe that says something

 

[haha]

seems to me the last time there was this much excitement about gold was around 1980 ... just before it peaked ... and few were much interested when it was below 300 nearly 20 years later

Are you old enough to know this first hand? Because the difference is immense. I remember sitting in a coffee house that fronts on an alley a block south of the U. Bookstore in Seattle. Not the place for speculators. But I heard 2 separate conversations about getting into gold. The same week there was an article in the Seattle Times featuring some genius businessman who had sold his small chain of restaurants and plowed it all into gold.

I agree with people who say that gold is irrational and hard to value in a businesslike way. But if you are speculating, know that today's "excitement" isn’t much compared to recent history.

Ha

 

[d]

HaHa

yes, I'm old enough to remember this first hand.  At the previous 600 level (and just prior) I decided not to join the herd, and in the late 90's (thru early 00's) decided not to bet at the bottom. (I distincly recall discussing with a colleauge the persistent sub $300 price, and suspecting it could be a good move.)

not that I'm necessarily consistent, but I'll not likely join the frenzy at this time either.  It is one thing to bet on "productive assets", another to simply bet.

The history of gold certainly suggests that one can make $ ... and also that one can lose it.  Alternatively, consider the 26 year investement with an average annual return of 0%. I'm not playin'.

 

[haha]

You're gonna love the premiums.

Ha

 

[mb]

hmm. the poll results are almost split 1/3 for each....maybe that says something

I noticed this to Maddy. Perhaps not to surprising if you think about!

In the last couple of years I have increased my exposure to RE and natural resources but I haven't specifically invested in precious metals. Have thought about it more recently but I suspect that I'll probably continue to sit on the sidelines.

MB

 

[Gone4Good]

Somebody mentioned a "sage fundamental analysis" of gold.    Could I get a pointer to that?

My naive understanding of the metal is that the price fluctuation is mostly a function of inflation and the dollar's exchange rate.

If we look at inflation over the last two years, it has been around 3-5%.

If we look at the dollar over the last two years, it is virtually unchanged against the Euro.

If we look at gold over the last two years, it has almost doubled.

What's wrong with this picture?

Hehehe. That's the inside joke that none of the gold bugs get. Gold has been a lousy hedge against inflation ever since we went off the gold standard. Does anyone really think they are buying an inflation hedge or a dollar hedge at $600 / ounce when the dollar has neither dropped by 200%, nor inflation run 200% over the last 3 years? Is there any reason to believe gold can't fall by half from current levels regardless of what the dollar or inflation does?

 

[Focu$ed]

Hehehe.  That's the inside joke that none of the gold bugs get.  Gold has been a lousy hedge against inflation ever since we went off the gold standard. 

Statistics show that the purchasing power of the dollar is now 5 cents, compared to what a dollar would buy when we went off the gold standard. The price of gold has gone from $20 just prior to 1933, to $590 now. At the current price, then, gold has substantially outpaced inflation. If it had only kept pace with inflation gold would be $400.

 

[mathjak107]

dont forget since the 70's inflation has been in a long term decline ..commodities as a whole declined right up to a few years ago taking off again over the last few years...we never really got a chance to see what gold could do when confronted with inflation as its been tame....and anyone who doubts gold kept up with inflation remember,in the 1800's 1 ounce of gold bout a mans suit and maybe a pair of cheap shoes....guess what the same ounce buys today? a mans suite and maybe a pair of cheap shoes

 

[Gone4Good]

dont forget since the 70's inflation has been in a long term decline ..commodities as a whole declined right up to a few years ago taking off again over the last few years...we never really got a chance to see what gold could do when confronted with inflation as its been tame....and anyone who doubts gold kept up with inflation remember,in the 1800's 1 ounce of gold bout a mans suit and maybe a pair of cheap shoes....guess what the same ounce buys today? a mans suite and maybe a pair of cheap shoes

Perhaps. But how happy would you have been if you bought it in 1980, the last time it traded at $600? How good of a hedge has it been over the last 25 years? How good of a hedge will it be over the next 25?

 

[cute fuzzy bunny]

Hmmm...homes in my area in the 80's...under 60k...today 400k. Basic sedan in the 80's...$7000...today...$18k. A good pound of steak in the 80's...$3-4...today $15.

THIS is tame inflation thats been in a long term decline? Ohhh....I dont think so!

You look at gold since 1971, which makes a bit more sense than since 1933, and except for the late 70's inflationary period, theres no correlation between gold price and inflation. The run up in the late 70's was simply people buying the metal because inflation was soaring and when it did that...you bought gold. Its simply what you did. It no longer made any sense, but that rarely stops an investor and a sales man with a 75 year chart of prices. :-/

 

[unclemick]

It's the romance stupid - I gotta have some - sorta like male hormones and hobby stocks.

BUT! - I don't count it as part of my 'essential ER' portfolio - basically a Boglehead vs slice and dice.

Ashamed to say - I do count my dividend stocks. Not a purist I guess.

Heh heh heh heh heh - my BIL is a mining engineer. I love 'rocks and stuff also.'

Last owned some VG PM in the early 90's - along with a good dose of - psst Wellesley.

 

[bearkeley]

Can we have one more option?   How about:

"There is no fundamental way to value gold, so I have no clue, and I avoid investing in things about which I have no clue."

Man If I have to invest is things I have a clue about, Im screwed!

 

[Gone4Good]

Man   If I have to invest is things I have a clue about, Im screwed!

Hmmm

1) Bonds. . . discounted cash flow of future interest and principal payments.
2) Equities . . . discounted cash flow of future dividends
3) Gold . . . discounted cash flow of the price the next sucker is willing to buy this shiny lump of mettle from me
4) Tulip bulbs . . . see gold

 

[Focu$ed]

Hmmm

1) Bonds. . . discounted cash flow of future interest and principal payments.
2) Equities . . . discounted cash flow of future dividends
3) Gold . . . discounted cash flow of the price the next sucker is willing to buy this shiny lump of mettle from me 
4) Tulip bulbs . . . see gold

Gold is valued by current income produced and by proven and probable reserves that can be mined. It's not easy to caculate, but you're smart people here, you could learn if you decided to. Since most people here would only invest in something that is part of an index fund, you probably will never need to know the math. I do not mean this in a snarky way, it's simply an observation of the investing methods people are most comfortable with here.

It's strange, someone here might not care to invest in an T-Bills, but they do not display an irrational hatred for T-Bills, yet it seems the mention of an investment in gold, a tangible asset and 5000 year store of wealth, brings out that kind of response.

 

[REWahoo]

It's strange, someone here might not care to invest in an T-Bills, but they do not display an irrational hatred for T-Bills, yet it seems the mention of an investment in gold, a tangible asset and 5000 year store of wealth, brings out that kind of response.

"Irrational hatred" of gold investments wouldn't be the words I would select to describe the reaction you are getting. True, some responses have been a bit harsh and some of the remarks a little snarky, but you had at least some expectation of the response you would get and stated so in your initial post:

Rather than diversify, we focused our spare money completely on what we identified to be the emerging bull market to get the most mileage out of the meager funds we had to work with. Gold, copper, silver etc. have all more than doubled since we started.

When I changed jobs and got access to my 401K money, I put it all into precious metals. (I know what you are thinking. I know the lecture I'll get for this).

Once again, if you come to a forum where the mantra is diversify your assets and tell us "I'm putting it all on number 33, spin the wheel", you've gotta expect to take some shots.

 

[Nords]

Since most people here would only invest in something that is part of an index fund, you probably will never need to know the math.

I do beg your pardon, the Vanguard Diehards live over here.  Please don't confuse us with those zealots.

C'mon, Focu$ed, shrug the chip off your shoulder.  I can see how you'd be a little defensive about precious metals but there's no need to cast aspersions on the people who like to read 10Ks & pick individual stocks.

As far as that "irrational hatred for T-bills" comment, I can't recall any T-bill-bug sites like the goldbug sites that have sprung up all over in the last year or two.  It's no wonder that PMs get a spotty reputation when the whacko fringe is making their noises.

 

[mb]

I know little about the gold market, so correct me if I'm wrong but this is my view.

It seems to me that the value of gold is largely based on culture and history.  To primitive societies it was of great value because:

- it doesn't corrode
- it is soft, malleable and easily shaped
- it is present in nature as the metal rather than as an oxygen or sulfur compound making the refining and purification process easier

These properties make it very valuable to a technologically primitive society but they are no longer that important.

I have heard the term "fiat currency" for a currency that is not backed by real assets.  Well it seems to me that gold is kind of a "fiat metal" because it is priced at a value that is greater than its present intrinsic worth to society because of cultural/historical factors.

MB

 

[Focu$ed]

"Once again, if you come to a forum where the mantra is diversify your assets and tell us "I'm putting it all on number 33, spin the wheel", you've gotta expect to take some shots.

That is not the issue at all.  I do not take offense when people suggest I should be diversified, since I realize that is conventional investing wisdom, and it is very good advice. I do not recommend that people invest as I invest. But I do believe that precious metals are a legitimate investment, that's all, and I would hardly liken investing in gold, copper, uranium, silver etc. to investing in tulip bulbs. I suspect others here might feel insulted or defensive if someone told them their favorite Vanguard fund was no better than investing in Beenie Babies. It's just hard to understand the scope of negativity at times, since it seems so unjustified and irrational. I respect other peoples right to disagree, certainly, and despite having my feathers ruffled a bit, there are no hard feelings.

 

[wabmester]

Hey, what's your problem with Beanie Babies?    Cute, fuzzy, and attractive to speculators due to artificial scarcity.   Brilliant idea.

And Tulips?   Very pretty, and during the mania, they were very scarce too.

Gold?   Shiny.   And scarce.   And prone to speculation.

Seems like a reasonable analogy to me.   Collectibles and art are in the same category.   You can make money from all of these things, but since they are impossible to rationally value, they are prone to speculation and dramatic swings in value.

Yeah, stocks, bonds, and real estate are subject to speculation too, but there is always rational intrinsic value in stuff that can generate a reliable income stream.   To me, that's what makes something an investment rather than a speculative vehicle.    Of course, nobody is saying that you can't get rich by speculating -- just that it's much harder to predict the outcome.