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Old 12-10-2010, 08:19 PM   #21
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Ah, that's the question, isn't it?
Just trying to spot the relevant macroeconomic trends and work out the consequences.
Same as making the decision to buy an individual stock -- you have a reason to think its price will go up, but your reason may not be a good one, or even a valid one. Still, we make our choices and live with them.
If you asked the same question "by what measure are you evaluating an individual stock" the answer could be P/E, PEG, P / Book, free cash flow yield, dividend discount model, NPV, etc. etc.

I thought there might be something similar you were looking at for gold.
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Old 12-10-2010, 08:44 PM   #22
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I am liking the idea of gold etf puts as a speculation. May have to look into that.
If there is one thing I've learned about the last two bubbles, is that timing their demise is really hard. I sold out of my REITs two years before the peak. It would have been really painful to buy puts those last two years.

As for gold, I think it is early days for the bubble. The other two bubble ran maybe six years or so, but gold doesn't have the same limitations as the others. The tech bubble could last only as long as people were willing to ignore money losing business models. And the real estate bubble could last only as long as folks were allowed to borrow their mortgage payment. In each of those cases, there were real economic and financial forces pulling the bubble back to ground. Nothing like that exists for gold. Gold will never miss a sales forecast, or have trouble making a loan payment. So the rally can go on until the psychology changes. Good luck forecasting that.
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Old 12-11-2010, 06:28 AM   #23
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I thought there might be something similar you were looking at for gold.
Alas, no. I just watch what's happening.
Admittedly, I'm a very cautious type (I actually made money on Enron), and normally bail out of good things way too early, but I see no reason to sell gold yet.
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Old 12-11-2010, 07:54 AM   #24
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Alas, no. I just watch what's happening.
Admittedly, I'm a very cautious type (I actually made money on Enron), and normally bail out of good things way too early, but I see no reason to sell gold yet.
I agree that it's probably early in the bull market (see above).

But I'm having trouble understanding what's driving the price move, if not just pure speculative frenzy. If it's really being driven by an increase in the number of dollars in circulation, shouldn't other dollar demomintated products experience a similar rise in price? And I'm thinking specifically of those items not priced on financial exchanges . . . like cars, clothes, haircuts, etc.

If I've increased the number of dollars relative to the supply of gold, haven't I also increased them in the same proportion relative to the supply of haircuts?
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Old 12-11-2010, 08:50 AM   #25
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If there is one thing I've learned about the last two bubbles, is that timing their demise is really hard. I sold out of my REITs two years before the peak. It would have been really painful to buy puts those last two years.

As for gold, I think it is early days for the bubble. The other two bubble ran maybe six years or so, but gold doesn't have the same limitations as the others. The tech bubble could last only as long as people were willing to ignore money losing business models. And the real estate bubble could last only as long as folks were allowed to borrow their mortgage payment. In each of those cases, there were real economic and financial forces pulling the bubble back to ground. Nothing like that exists for gold. Gold will never miss a sales forecast, or have trouble making a loan payment. So the rally can go on until the psychology changes. Good luck forecasting that.
This would be speculation, remember? That implies very high risk and a solid chance of losing everything I stake on the bet.

I intentionally keep about 1 to 2% of my portfolio in very high risk, high potential reward speculations. Usually I use longer dated options for this because they offer the combination of limited capital outlay at risk and returns that can be many multiples of the sum invested. I have probably made almost as much on the 1 to 2% of speculative stuff as I have on the rest of my portfolio.

But caveat emptor and I agree that it may be to early to short the gold market.
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Old 12-11-2010, 09:41 AM   #26
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I agree that it's probably early in the bull market (see above).

But I'm having trouble understanding what's driving the price move, if not just pure speculative frenzy. If it's really being driven by an increase in the number of dollars in circulation,
You're in excellent company.
Nobody else, including the experts, understands it very well either.
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Old 12-11-2010, 10:44 AM   #27
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I can't find the article that I read the other day right now, but the gist of it was the the driving force behind the increase is a (minor) decrease in supply against and significant current and forecast increase in demand from the increasing prosperity in both China and India. In both cases, you have people with rapidly increasing income with a lack of long-term trust and stability in banks. In addition, in China there has been a tremendous increase in the values of real estate and in the stock market, to the point where they may be considered a bubble relative to their real value, but there is still immense demand for investment opportunities for the newfound wealth. The increase in demand for gold is a reflection of this - much like our great depression generation, there is a very conservative mentality, and gold is seen as safe, transportable, tradable, and not seizable by a bank or government by fiat online. Because there are so many people, the net increase in demand is very large and projected to grow. because of the projected demand growth, other investors are bidding up the price some now in anticipation of the long-term demand growth as well. Build in to that as well is that, unlike the 1980s bubble, more exploration has happened in the past 30 years, so the potential for uncovering easy new sources to supply the demand is much less likely.

Seemed a reasonable argument to me, but I only own a 1/10 oz coin that was a gift years ago, and figure that I'll hang on to it for a bit yet. Call it a good emergency piece.
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Old 12-11-2010, 12:14 PM   #28
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You're in excellent company.
Nobody else, including the experts, understands it very well either.
I disagree...there are many who have no problem understanding what's happening to gold as I do and explained it in a earlier post, but here goes again, Gold doesn't change the world around it does. So if EU countries continue to fail and the US keeps the printing presses rolling, gold will continue to rise.

If Italy or Spain need a bailout, gold will rise very significantly as we are approaching "to big to bail out" range and might precipitate the end of the EU and the Euro.

If the US cannot get the economy to stand on its own without QE, Gold will rise very significantly.

If all these Western economies get their fiscal act together, then gold will drop significantly.

What do you think is going to happen?
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Old 12-11-2010, 12:22 PM   #29
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I disagree...there are many who [are convinced they understand] what's happening to gold...
There, I fixed it for you.
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Old 12-11-2010, 01:01 PM   #30
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I disagree...there are many who have no problem understanding what's happening to gold as I do and explained it in a earlier post, but here goes again, Gold doesn't change the world around it does. So if EU countries continue to fail and the US keeps the printing presses rolling, gold will continue to rise.

If Italy or Spain need a bailout, gold will rise very significantly as we are approaching "to big to bail out" range and might precipitate the end of the EU and the Euro.

If the US cannot get the economy to stand on its own without QE, Gold will rise very significantly.

If all these Western economies get their fiscal act together, then gold will drop significantly.

What do you think is going to happen?
I'm guessing what braumeister meant to say is the experts who do not understand the concept of supply and demand and how they effect the price etc.
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Old 12-11-2010, 01:31 PM   #31
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I'm guessing what braumeister meant to say is the experts who do not understand the concept of supply and demand and how they effect the price etc.
I remember when I bought gold in the early 1980's at about $800 per oz. At the time I thought it was a great investment. Darn, I sold it at $400 per oz. some years later. And to think today (30 years later), I could have doubled my money. That's a rate of return of 2% per year. Yea, made a big mistake with that move.
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Old 12-12-2010, 12:55 AM   #32
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That's a rate of return of 2% per year. Yea, made a big mistake with that move.
2% APY BEFORE inflation.

But if you'd kept your gold then you wouldn't have to worry about inflation...
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Old 12-12-2010, 03:48 AM   #33
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2% APY BEFORE inflation.

But if you'd kept your gold then you wouldn't have to worry about inflation...
Yea, but for 20 + years it sat at a loss .. if I would have kept it, there would have been many years when it was below inflation; long periods when it is ill-liquid. Remember, the value of gold is tied to nothing but the emotional sentiment of potential buyers and potential sellers. It has no book value, no P/E ratio, gives you no interest or rent, and pays no dividend. It can go up and down like a yo-yo and then sit at a fixed price for years. There is absolutely no way to judge the true value of gold; it is all driven by the irrational emotions of speculators.

The best thing to do with gold is to give it to your girlfriend as jewelry. The ROI on gold is much higher when it is worn around a woman's neck.
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Old 12-12-2010, 09:29 AM   #34
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2% APY BEFORE inflation.

But if you'd kept your gold then you wouldn't have to worry about inflation...
Heh, heh, heh.

That's the trouble with gold as an inflation hedge. It's so volatile it's impossible to know the price at which it will actually hedge inflation. Certainly $800 in 1980 didn't do it (inflation has averaged 3.4% over the past 31 years, which would put today's gold price at $2,250).

So what is the right price? Is it $300, $500, $800, $1,000, $1,300? If you look at the long-run real price chart, something less than $500 stands out as the stable inflation adjusted price. If that's true, today's price of gold is already pricing in average annual inflation of 10% for the next decade. If we get less than that, gold should be a loser investment in both real and nominal terms during that time.

But even if $1,300 is the right number, our expected real return for gold from today's price should be zero as the nominal return equals inflation, over time.
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Old 12-12-2010, 10:29 AM   #35
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Heh, heh, heh.

That's the trouble with gold as an inflation hedge. It's so volatile it's impossible to know the price at which it will actually hedge inflation. Certainly $800 in 1980 didn't do it (inflation has averaged 3.4% over the past 31 years, which would put today's gold price at $2,250).
.
That's right, I used constant dollars and didn't even factor in inflation. That REALLY MAKES GOLD a terrible place to keep your money. All this talk about a "flight to safety" is BS. I am too lazy to look this up on the internet, but I wonder what the value of our money would be today if we would have stayed on the gold standard - without artificially keeping the price of gold at $32/oz like it was before Nixon took us off.

And think how difficult it would be for the FED to control the monetary policy.
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Old 12-12-2010, 10:41 AM   #36
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IMO - it looks like a momentum play.
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Old 12-12-2010, 12:50 PM   #37
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IMO - it looks like a momentum play.
That's it exactly. Buy it a little at a time when the price is low. Mount it in a coffee table,or picture on the wall. Then, when everyone is buying gold like crazy, SELL AND MAKE A LITTLE MONEY. If you've never seen 24k gold jewelry, it would blow the panties off any woman!!! Powerful magic.
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Old 12-12-2010, 12:58 PM   #38
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If you've never seen 24k gold jewelry, it would blow the panties off any woman!!! Powerful magic.
But Tequila is much cheaper by the ounce.
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Old 12-12-2010, 07:39 PM   #39
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But Tequila is much cheaper by the ounce.
. However, Tequila typically only works one time to remove the panties, or at the very least requires refills. Gold generally result in getting lucky multiple times. Still this seems like a great academic study for the Freakonomics guys. The cost effectiveness of tequila vs gold in getting laid. I bet when gold is many times more expensive than tequila that is good sign that gold is in a bubble.
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Old 12-12-2010, 08:43 PM   #40
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I remember when I bought gold in the early 1980's at about $800 per oz. At the time I thought it was a great investment. Darn, I sold it at $400 per oz. some years later. And to think today (30 years later), I could have doubled my money. That's a rate of return of 2% per year. Yea, made a big mistake with that move.
If 10 years ago you had invested in Vanguard's "Index 500" fund, instead of its "Precious Metals" fund, your return today would be rather flat. Meanwhile. an investor in VG's Precious Metals fund would be ahead some 22% per year.
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