Makes the Case That Gold Is Good Speculative Asset, In Part Because It Is Useless

[haha]

Two Moves to Make as the Fed Inflates the Commodities Bubble - Seeking Alpha

Clever observation, don't know what I think about it except that this would appear to be risky business.

Ha

 

[al_bundy]

gold is used in a lot of things as well as jewelery

 

[haha]

gold is used in a lot of things as well as jewelery

And what do you think its price would be apart from its monetary use ans speculative appeal?

Ha

 

[BoutDone]

I have followed GOLD (and OIL) for some time now. These are two of the very few items I trade along with the QQQQ's and DIA's ETFs.

Gold could very well be on a new bull run. You can follow along at the following link.

Public Chart Lists - StockCharts.com

I am much more of a trader than most on this board. But, it is my hobby and makes money to boot.

 

[tomintucson]

I once heard a market observer describe investing in gold as "an emotional experience". But this was not meant to dissuade investors. I can't remember who it was that said this-maybe James Grant?

By the way, I'm very heavily invested in metals, and don't self-identify as an emotional investor. Perhaps I fool myself.

Tom

 

[haha]

What I found interesting about the article is the way he contrasted gold and oil. Oil, since it is mainly a real asset used in commerce, industry, and daily life, has limits on its speculative appeal as higher prices will cause some degree of demand destruction over time.

Not so with gold. Some price sensitive demand would go away; but a great deal of speculative demand would be stimulated creating a positive feedback mechanism.

This sort of "investing" does not appeal to me personally, but I am intrigued by his assertion.

Ha

 

[al_bundy]

like any commodity, what ever people are willing to pay. i don't buy the current story that commodities are in a bubble due to speculation. doesn't mean it's not true, but every year there is a different story why the prices are up and a new scare story that prices will drop.

if there is a bubble then the media will probably start saying how good of an investment they are and that the price drop is really a chance to buy.

i also don't believe that gold is money or real money compared to paper money. money is just a form to value goods and services that is better than bartering. historically a lot of things have been used as money other than gold, and paper money has a long history as well

 

[Marquette]

Regarding gold... here's one thing I've always wondered about. It seems that you either buy gold as a store of value or to hedge against world catastrophe. If you're in the first camp, it seems that speculation could hurt you if you're buying at the high (ala the last gold run). Since some of the pricing seems emotional and subject to speculation flux, just like anything else I guess, how do you know when it's a good value store?

If you're in the second camp, I assume you'd never actually buy shares; you'd want the hard stuff in a safe in your basement. After all, if there's an economic collapse, are you really going to trust the company to honor delivery. And, even if they do, how would they get it to you? Lastly, given that gold hasn't always been a currency, one might want to hedge with owning salt, stones, and seashells too.


<off-topic>
I've heard lots of people say that oil is being driven up by speculation. I've heard lots of people say it's not.

So, how does speculation work? I really don't understand it, honestly.

Say I, as a speculator, buy a futures contract for a thousand barrels of sweet for October at $145 a barrel. I have no plans to take physical delivery. October gets here and the spot price is $160. I sell my futures at $155 and make a nice profit. That means someone is taking delivery, right? Either to send into the supply or to hoard. Since the spot price seems fairly close to futures, does that mean anything?

I suppose the other side could be that people keep bidding up futures... so say a November delivery contract is $165. Consumption nose-dives and the spot is $145 in November. I assume I'm still selling my futures, but at a loss now.

I know I don't know anything about futures trading, can someone provide a thumbnail sketch?
</off-topic>

 

[al_bundy]

don't know about the oil market, but i've read similar stories of the treasury market

one of the primary dealers bids on the auction and takes delivery of the t-bills. it will take a few months to sell to their customers so they buy and sell futures to hedge against possible price changes.

 

[haha]

<off-topic>
Say I, as a speculator, buy a futures contract for a thousand barrels of sweet for October at $145 a barrel. I have no plans to take physical delivery. October gets here and the spot price is $160. I sell my futures at $155 and make a nice profit. That means someone is taking delivery, right? Either to send into the supply or to hoard. Since the spot price seems fairly close to futures, does that mean anything?

The someone who buys your long contract may be a short closing out; so no, someone is not necessarily taking delivery.

As to your other question of prices converging to spot at contract close they of course do. The bigger question is whether spot leads futures, or futures lead spot.

Ha

 

[brewer12345]

Not so with gold. Some price sensitive demand would go away; but a great deal of speculative demand would be stimulated creating a positive

This has been fascinating to watch in the real world. Dad sells jewelry to retail customers, or at least he used to. For a number of years he had regular customers who bought stuff regularly as well as a large number of word-of-mouth customers who bought stuff one-off. Since gold prices hae gone nuts, he sells very little jewelry any more because the price of a bauble has tripled vs. a few years ago (don't ask about diamond and other gemstone prices - whew).

But he has an easier job now and makes at least as much money as you used to selling jewelry. Instead of selling, he now buys. Old stuff, broken stuff, unwanted stuff, out of fashion stuff, and especially yellow gold stuff (white gold is apparently the new hawtness) - he pays cash on the barrel-head. Then he makes a weekly trip to the guys who melt it down and purify it and sells for a higher price than he pays.

 

[CitricAcid]

The someone who buys your long contract may be a short closing out; so no, someone is not necessarily taking delivery.

As to your other question of prices converging to spot at contract close they of course do. The bigger question is whether spot leads futures, or futures lead spot.

Ha

When you are covering a short, aren't you technically paying back someone you owe? (You borrowed 10 oil contracts, sold them, now you buy them back and deliver them back to the person who owned the contract originally) If this is true, then somebody does take the delivery (the original contract holder), just not the person who buys it from you.

 

[Lancelot]

I've observed that Thai bar girls do very well "investing" in gold

(foreign boyfriend buys a gold necklace which, after he departs for home, she promptly sells back to the gold shop)