Price of gold dropped $84 /oz. today

[haha]

Actually, not sure if trading has stopped everywhere. It should have, but the website I looked at shows a continued fall to -85 or more. Bloomberg shows New York trading ending down around $78.

To me, very interesting. Supposedly the value of gold should up as more money is being printed, and more money is being printed everywhere in the world today, and this is not at all likely to stop. So what does gold do? It goes down.

Read a jeff Gundlach presentation where he was asked if the bond market might be about to break. His opinion was -no way. He said Bernanke is more likely to buy every bond in existence than to sell one bond, though he might do some headfakes.

Benny can suppress interest rates since he is de facto the market. But I don't see how he can prevent inflation of assets and/or commodities, and eventually wages and consumer prices.

There is undoubtedly a limit somewhere, and he will very likely find it. Next question, can we have inflation without gold responding? I would say yes, there is no automatic of inflexible link between various forms of inflation, and the price of gold. As a pure commodity gold is likely overpriced today, no matter that it is very pretty, in fact very beautiful.

But there are also reasons to think that though there is no automatic link between gold and inflation, there is a likelihood of response. Even nation states have not quit on gold; Germany recently brought back all of its gold stored in France, and part of what was stored in the Federal Reserve.

I plan to make some more investments in gold miners. I bought some today, and I already have a loss but I think in time it will prove to be a not half bad idea.

Ha

 

[brewer12345]

Ha. there were rumors in the market today that Cyprus was going to dump its gold reserves on the market to try to raise some cash. The Cypriot central bankers were squealing to the effect that nobody consulted them and they technically own the gold. I suspect the gold market sold off at the prospect of the Cypriot fire sale. Is this a short term blip or the straw that breaks the golden camel's back? I've no idea, but of all the commodities out there I would put gold in the bottom few as places I would invest right now.

 

[ERhoosier]

Admit to no more than passing curiosity in the gold market, but does Cypress really have that much gold to move the world market?

 

[timo2]

looks like some major profit taking!

 

[brewer12345]

Admit to no more than passing curiosity in the gold market, but does Cypress really have that much gold to move the world market?

I have no idea. It could be that this was simply an excuse to start a panicky retreat/round of profit taking in an already overvalued market.

 

[MichaelB]

I always thought gold was as much a hedge for fear as inflation, and as Central Bankers print, fear is receding. They do seem determined to support the value of financial assets.

 

[braumeister]

Ideally, gold goes down as stocks go up. That has certainly been happening lately.

 

[AndrewJackson]

Actually, not sure if trading has stopped everywhere. It should have, but the website I looked at shows a continued fall to -85 or more. Bloomberg shows New York trading ending down around $78.

To me, very interesting. Supposedly the value of gold should up as more money is being printed, and more money is being printed everywhere in the world today, and this is not at all likely to stop. So what does gold do? It goes down.

Read a jeff Gundlach presentation where he was asked if the bond market might be about to break. His opinion was -no way. He said Bernanke is more likely to buy every bond in existence than to sell one bond, though he might do some headfakes.

Benny can suppress interest rates since he is de facto the market. But I don't see how he can prevent inflation of assets and/or commodities, and eventually wages and consumer prices.

There is undoubtedly a limit somewhere, and he will very likely find it. Next question, can we have inflation without gold responding? I would say yes, there is no automatic of inflexible link between various forms of inflation, and the price of gold. As a pure commodity gold is likely overpriced today, no matter that it is very pretty, in fact very beautiful.

But there are also reasons to think that though there is no automatic link between gold and inflation, there is a likelihood of response. Even nation states have not quit on gold; Germany recently brought back all of its gold stored in France, and part of what was stored in the Federal Reserve.

I plan to make some more investments in gold miners. I bought some today, and I already have a loss but I think in time it will prove to be a not half bad idea.

Ha

Very well thought out and interesting post. You are one of the few that seem to understand that Central Banks are the market in bonds. Bernanke/draghi/kuroda will never sell a single bond and play this game until citizens are demanding their arrest. I actually believe nominal bond prices will hold up very well in an inflationary environment due to these manipulations.

The only problem is that in real terms, bonds will not provide any sort of return. What could very well end up happening is that the central banks could end up owning the entire bond market as investors flee fixed income assets for anything with inflation protection (ie safe haven currencies/gold/real assets/stocks/etc). That is one of the reasons I believe the jgb market has been so volatile as of late. Every logical person wants to sell their 10 year jgbs at 30-50 bps and invest it in anything with an inflation protected yield. If you are investing for the long run, the chance that inflation protected assets under perform a 10 year treasury of 30-50 bps is virtually 0. This huge selling, however, is countered by the crazy central bank buying and front running by speculators leading to huge volatility. The 10 year jgb actually traded a 100% of its yield after the BoJ announcement from 32.5 bps to 65bps in a matter of hours.

***Be mindful of TIPS. The fed and other central banks buy TIPS, meaning their yields are extremely distorted to the low end. Combine this with their artificially low cpi numbers from the government and you have a real recipe to be left unprotected in a high inflationary environment.

 

[AndrewJackson]

Ha. there were rumors in the market today that Cyprus was going to dump its gold reserves on the market to try to raise some cash. The Cypriot central bankers were squealing to the effect that nobody consulted them and they technically own the gold. I suspect the gold market sold off at the prospect of the Cypriot fire sale. Is this a short term blip or the straw that breaks the golden camel's back? I've no idea, but of all the commodities out there I would put gold in the bottom few as places I would invest right now.

Don't view gold as investment. Buy some in case of emergency and just let it be. Every now and then, go buy some ounces and store it at home or in a sdb. At a minimum, I think everyone should have 10% of their assets in physical precious metals. The main reason to own is that gold has the longest track record of any money and will likely continue to be money in the future. I view gold as a way to preserve wealth from ever encroaching governments who are hell bent on taking more and more from their citizens as well as a hedge against inflation. So just buy some and hope that the government doesn't target individual's assets or cause massive inflation.

As someone who is long physical, the best thing that could happen for me would be to have my physical be passed on to the next generation.

 

[brewer12345]

Don't view gold as investment. Buy some in case of emergency and just let it be. Every now and then, go buy some ounces and store it at home or in a sdb. At a minimum, I think everyone should have 10% of their assets in physical precious metals. The main reason to own is that gold has the longest track record of any money and will likely continue to be money in the future. I view gold as a way to preserve wealth from ever encroaching governments who are hell bent on taking more and more from their citizens as well as a hedge against inflation. So just buy some and hope that the government doesn't target individual's assets or cause massive inflation.

As someone who is long physical, the best thing that could happen for me would be to have my physical be passed on to the next generation.

Hmm, we have different views on physical gold. I view it as a speculative instrument, much like a bitcoin. A science fiction author whose name escapes me once wrote a series of short stories in the 70s where the main character was trying to build wealth by accumulating "frumpstiggle" for services rendered to aliens (which the author later admitted was basically a commentary on gold). So we might as well call it frumpstiggle for as much validity it has as an investment vehicle. I would rather have my capital invested in operating businesses which are creating value for the economy. For many of the purposes people claim to invest in gold, I have a cache of food, potable water, various camping gear, some firearms, and lots of ammo. YMMV.

I suppose I could be considered to be long PM via DW's jewelry, but I'd probably be posting from my hospital bed if I attempted to take profits on it.

 

[AndrewJackson]

Hmm, we have different views on physical gold. I view it as a speculative instrument, much like a bitcoin. A science fiction author whose name escapes me once wrote a series of short stories in the 70s where the main character was trying to build wealth by accumulating "frumpstiggle" for services rendered to aliens (which the author later admitted was basically a commentary on gold). So we might as well call it frumpstiggle for as much validity it has as an investment vehicle. I would rather have my capital invested in operating businesses which are creating value for the economy. For many of the purposes people claim to invest in gold, I have a cache of food, potable water, various camping gear, some firearms, and lots of ammo. YMMV.

I suppose I could be considered to be long PM via DW's jewelry, but I'd probably be posting from my hospital bed if I attempted to take profits on it.

Comparing the money of the wealthy for 6000 years to bitcoin is quite the comparison. Like I said, gold is not an investment it is a hedge to "poof its gone". It is only in the last 100 years that people have turned away from gold as the store of value. Our entire money system is a complex web of credit based on nothing that could evaporate in 5 seconds.

You can never guess what lies in the future. I would rather be on the side of conservatism and plan for capital controls/asset confiscations/and currency impolosions . If gold goes to $ 0 and I put 10% of my contributions in, I would still have 90% of the net worth under only productive assets. Doesn't seem like to bad of a risk reward to me. Absolutely ensuring preservation of some of your assets seems like a no brainer.

Another good thing, if done right, your purchases of Gold grow tax free and bypass any estate taxes. Just remember you will need a leaky boat trust or the like to do that and have a way for heirs to receive it upon your death.

 

[timo2]

Hmm, we have different views on physical gold. I view it as a speculative instrument, much like a bitcoin. A science fiction author whose name escapes me once wrote a series of short stories in the 70s where the main character was trying to build wealth by accumulating "frumpstiggle" for services rendered to aliens (which the author later admitted was basically a commentary on gold). So we might as well call it frumpstiggle for as much validity it has as an investment vehicle. I would rather have my capital invested in operating businesses which are creating value for the economy. For many of the purposes people claim to invest in gold, I have a cache of food, potable water, various camping gear, some firearms, and lots of ammo. YMMV.

I suppose I could be considered to be long PM via DW's jewelry, but I'd probably be posting from my hospital bed if I attempted to take profits on it.

I have gold not as an investment but as an emergency hedge. Whatever gold I have (only about 1% of NW, nuggets & coins) is kept to buy a loaf of bread and a beer if everything else goes to heck. When the price of gold became hyper-inflated, I did quit buying it, but other than that, the price of gold today is irrelevant.

Regarding DW's jewelry, mine would be the first to trade hers for bread and beer (to share, I hope).

 

[Tyro]

Actually, not sure if trading has stopped everywhere. It should have, but the website I looked at shows a continued fall to -85 or more. Bloomberg shows New York trading ending down around $78.

FWIW, Stories I've been hearing all week have been saying that the gold bubble was about to burst, recent values not based on fundamentals, yadda, yadda, and that they expect the bottom to be around $1200 and stay there for some time.

gold bubble - Google Search

I'm not a goldbug, but if I were, I think I'd wait a bit to see what happens, or at least average in over time, whether an investment, hedge, or whatevuh.

Tyro

 

[gerntz]

At one point, I was at about 7.5-8.0% GLD, but with stocks rising & GLD dropping, it's around 5%. No plans to change. These both go in cycles I can't foresee.

 

[sengsational]

I have gold not as an investment but as an emergency hedge. Whatever gold I have (only about 1% of NW, nuggets & coins) is kept to buy a loaf of bread and a beer if everything else goes to heck.

If everything goes to heck, someone once told me that bottles of whiskey might be a good alternative too. Small enough value to be traded, gets better with age, and certainly will always be in high demand, hehe.

 

[Mulligan]

At one point, I was at about 7.5-8.0% GLD, but with stocks rising & GLD dropping, it's around 5%. No plans to change. These both go in cycles I can't foresee.

I agree with you on the cant foresee... I bought 4 gold American Eagles, back in 1993 for about $300 a piece for commemoratives for my daughters birth. Planned to give them to her at 18, not really thinking their value would increase. Now I told her I have them for her but am waiting til she is through college because they have appreciated so much I am afraid she run to the pawn shop and cash them in to blow the money in college.

 

[Ed_The_Gypsy]

Very well thought out and interesting post.

As always.

Ha, your comments on bonds hit the mark. This is the first time I have seen the situation presented so clearly and succinctly. We live in interesting times.

I view Au as a commodity and a speculation. I prefer assets that pay dividends, such as gold mining stocks in this case (although I have none). The closest I come is petroleum--oil companies and pipelines.

 

[eytonxav]

Is gold really the best inflation hedge or is more a hedge against fear? I think the later.

Incidentally, Scott Burns (asset builder - DFA) recently dropped commodities from their various portfolio models.

 

[dtbach]

The problem with having physical gold as a hedge against an apocalyptic melt down is that an ounce of lead (in the form of a couple of 230 grain 45acp bullets) may trump your gold. . . . . .

 

[FIREd]

I personally think that future inflation expectations are already built into the price of gold. So I'm not so sure that the price of gold will go up when inflation finally picks up.

 

[GrayHare]

I personally think that future inflation expectations are already built into the price of gold. So I'm not so sure that the price of gold will go up when inflation finally picks up.

+1 Gold tracks negative interest rates better than it does inflation.

 

[CCdaCE]

Now if only I could've found a REIT that invests in freshly originated non recourse debt. Pay that debt back with inflated dollars up to 30 years from now. But, it looks like I'm about a month late to the party.

Next best bottom feeding opportunity appears to be energy sector. Anyone think it's a good inflation beater? But, it's only a 10-15% off sale, right now, depending on your view.

If only I had more liquid cash.

/troll on.

Shouldn't have paid extra toward the mortgage the last 6 mos. But, I guess the first 5 years of a 30 year will have about a 3x multiplier on interest savings vs. principal.

/troll off.

-CC

 

[haha]

Thanks for all the comments. I too prefer businesses with real assets and real profits, but some of my most profitable investments over the years have been commodity based. I wouldn't invest a lot in gold or gold securities, but once you get a decent asset base there are only 2 ways to move the needle. Invest some relatively small amounts in "win big or lose" investments (long shots), or invest a lot in securities that while you may have high confidence of succeeding, it would take a lot of luck to make large gains. Long dated options on crazy governments. Right of wrong, one of my investing maxims is that a lot of crap happens that neither I nor likely anyone else can really predict. While gold is not cheap, gold miners certainly seem to be. Admittedly, partly because they have been low profit undertakings.

But as Manuel, my favorite philosopher mechanic, who helped me get back on the road near Loreto in Baja California said when I offered my confident 25 year old gringo opinion about what was going to happen-Vamos a ver, señor, vamos a ver.

Ha

 

[chasesfish]

The problem with having physical gold as a hedge against an apocalyptic melt down is that an ounce of lead (in the form of a couple of 230 grain 45acp bullets) may trump your gold. . . . . .

I plan on using the 180 grain .40s&p to protect said stash of gold and food

 

[keegs]

Back in the late nineties, tech stocks were all the rage. Folks who never owned a share of stock before were suddenly jumping into the market. I remember the expressions on the faces of some colleagues and thinking, this must be a little like how it was back in 1849 California.

I think allot of what's behind gold prices is something similar...but maybe for different reasons though. Folks believe, perhaps rightly so, that they need to avoid risk. So some buy gold and some buy bonds. The problem is when too many have the same idea. Rising prices make the assets of risk protection ...risky.

It's probably not a bad idea to have some gold in your portfolio, provided you buy it when not so many of us have driven up the price.