Thoughts on Gold?

[chicago_meatball]

I had the same buddy who was all over this about 4 or 5 years ago. Started putting everything he had in gold and created a nice stock pile for himself. The old problem he became so consume at the thought of having gold, now he can't part with it. At the peak, he may have tripled up in around 18 months to 2 years time. Now he is looking at a nice 12-15% gain over the course of time. And come more years he will likely be looking at break even or a loss while the market may have appreciated in that time.

 

[haha]

Wasn't that 1980 $1,000/oz level an anomaly (speculation by a handful of manipulators)? I remember it was about $325 in the late 1980s/early 1990s.

Gold always has people who are strongly negative, as well as gold bugs as do many other investments or investment styles that work well at some but not all times.

Nothing works well at all times, so from my POV something that works well sometimes is worth keeping in mind.

In another thread an investor remarked that the equity allocation that varies with PE10 would have kept him out of the late 90s blow-off, so he rejected its worth. So will any value based, conservative strategy. The late 90s were made for trend followers, tip followers and very inexperienced investors. Nothing always works, or is always a good investment. This could not happen in competitive markets. Staying on in frothy markets is like the children's game of musical chairs. But you do have to quit playing before it all comes tumbling down, which it seems always to do. High tension and very difficult to do.

Ha

 

[daylatedollarshort]

We don't buy gold. We have panned for it. This year we'll probably upgrade to a sluice box.

We've never found an amount of gold worth more than we've spent in gas to get to the river, but there's always a first time.

 

[SteveL]

When gold was above $1600, I was counting on my six gold fillings to pay for my ultimate cremation....hoping to make a deal with the undertaker. Now that gold is down to the $1200 range, I'm not sure that will work.

 

[obgyn65]

I would not buy any gold. Too speculative in my view.

Thinking of putting maybe 50k into gold to diversify a bit. Wondering if I should wait to see if the price gets closer to $1000 an ounce. A lot of folks predicting gold prices will continue to drop for the next few months.

Thoughts o wise ones?

 

[hotwired]

Another view

I am going to buy some physical G and S. Both are down quite a bit in 2013, especially silver. I am only buying 5k now, maybe put up to 3-4 % of portfolio in. JUST to "fill a bucket." I have enough capital, though, to be able to do that. The "bucket" is the "oh sh*t" bucket. I'll have some physical PM to use for currency. (maybe) -- I don't subscribe to the "oh sh*t" possibility, but if you can afford to hedge for it, why not??

 

[RobLJ]

As the responses indicate, I think my view of gold is worth about the same weight in the precious as your view.

However (since you asked),
a) my portfolio allocation is 6% materials (with 2-3% in metals and miners)
b) the worst performer--by far--over the last 18 months has been the miner mutual fund in which I took a small position after selling GLD which I had almost doubled in one of my wife's rollovers. I think the one year damage is -48%. Luckily, the best (small position) in a Biotech gained 3x as much as the miners lost, so I don't feel too bad. If you include the gains in her GLD position (and an earlier position in the miner fund), I'm still up 25%, so I'm not crying too much
c) if you think GLD has hit bottom (how one determines this, I don't know), then the miners should (emphasize should) stabilize and/or accelerate. In a perfect world
d) I have to rebalance about 6% in large stock funds--as one would expect given the S&P outperformance--so I have a resolution to reinvest about 1/3 of last year's loss, sometime over the next 4 months. I'm waiting to see a bottom in the miners, which I may (or may not) have seen in the last month or so.
e) most advise not more than a 5% position in metals. Your 10% sounds rather ambitious. If you really want to do that, I'd suggest thinking about establishing a 3% initial position (give or take), then dollar cost averaging in over the next 2-3 years. I've done that in the past in emerging markets, China, biotech, and other volatile/risky areas with some success, although those successes may not be repeatable.
g) I like Materials--if you consider them an allied sector (as I do), so I'm putting more money on a monthly basis into them. YMMV. This is a 2-3 year plan, two if I semi-retire in two years, as appears likely, unless the market goes Wiley Coyote over the cliff.

 

[Al in Ohio]

While gold or silver can be a good investment if you buy after a large historical drop and then choose to sell on a peak , most don't buy as an investment but as a hedge against potential future hyperinflation. If that ever occurs in the US or world market gain in our lifetimes, those holding gold or silver will eat and keep warm while the rest of us spend down our fiat currency or currency based funds at a blistering pace just to survive until the market stabilizes again ( usually years later).

Most advise between 5-10% minimum of your entire net wealth in precious metals to hedge against this disastrous scenario. The key is to dollar cost average these buys over a long time, preferably when it's not on a year that's a bull run ( like the last 18 months til now).

 

[imoldernu]

Bumping this older thread to take a current look at gold.

While gold or silver can be a good investment if you buy after a large historical drop and then choose to sell on a peak , most don't buy as an investment but as a hedge against potential future hyperinflation. If that ever occurs in the US or world market gain in our lifetimes, those holding gold or silver will eat and keep warm while the rest of us spend down our fiat currency or currency based funds at a blistering pace just to survive until the market stabilizes again ( usually years later).

Most advise between 5-10% minimum of your entire net wealth in precious metals to hedge against this disastrous scenario. The key is to dollar cost average these buys over a long time, preferably when it's not on a year that's a bull run ( like the last 18 months til now).

The question is, how would this situation happen? While the answer to that will fade into the mist today, there are some people who are looking at the possibilities. Here is a fairly involved scenario that hasn't received mich attention.

"What if Russia adopted the gold standard?"

The theory integrates the way that major countries like China would be affected, and the reason they would be accepting of this possible change from the US Dollar currency standard, to gold. A secondary, and possibly even more problematic point is about the speed in which the change would happen... and the effect on fiat currencies.

Mises Daily | Mises Institute

 

[imoldernu]

A counterpoint to the previous cited article:

https://www.readability.com/articles/pewo0bkb

Ya pays your money, ya takes your choice!

A lot of people who buy bits of physical gold aren't looking to make a bracelet or ring. They buy gold because they believe disaster is imminent.
These investors are convinced gold will spike to $10,000 an ounce (it's currently around $1,225) when the U.S. government implodes, said Peter Hug, an executive at metals retailer Kitco.
Hug calls these people "crazies" and says they form a substantial amount of the U.S. physical gold market -- at least 25%.

 

[Big_Hitter]

I bought my first set of coins in late 2000. At the same time I invested heavily in FLGDX when it was about $1 a share and dumped to pay off my house when it was about $6 a share.


This was right after I got out of the "market" in early 2000 after getting a stock tip from a cab driver in DC.

No complaints here.

 

[pb4uski]

Thought on gold... makes nice jewelry. That's about it. I have never touched it as an investment.

 

[ejman]

I wonder if gold was actually used for regular transactions in the actual historic cases of hyperinflation that we know. Did people actually use gold in Germany in the early 1920's to go to the store to buy things or in Zimbabwe? Or did gold actually get used to buy everyday things during the tremendous rates of inflation in Argentina or Brazil? I've always felt that if it became widely known in times of social upheaval that I have lots of gold I might as well paint a bulls eye @ the back of my head.

 

[calmloki]

I wonder if gold was actually used for regular transactions in the actual historic cases of hyperinflation that we know. Did people actually use gold in Germany in the early 1920's to go to the store to buy things or in Zimbabwe? Or did gold actually get used to buy everyday things during the tremendous rates of inflation in Argentina or Brazil? I've always felt that if it became widely known in times of social upheaval that I have lots of gold I might as well paint a bulls eye @ the back of my head.

Good points. If I remember my Y2K training you also have 22 shells as a medium to make change and to make smaller purchases - don't want to have to be buying a crust of bread with a one ounce Philharmonic. Still have some of both... Crazy thing is 22 shells are now really hard to find and expensive - think my bricks of 22s have increased in value more than the gold!

 

[Big_Hitter]

That's why I got a brick of silver eagles too - to buy food, etc when the fit hits the shan.

 

[robnplunder]

I have 2 - 3% of my investment in gold ETF as a hedge.

 

[FIREd]

I have 5% of my portfolio (~3% of NW) in gold and silver. Is it a suitable investment? It seems to provide some diversification from other financial investments. I also like the fact that it is off the books and offline.

 

[imoldernu]

Back to the Von Mises article for a minute.
The author quoted the "Big Reset" book, which, in 2014, when it was written, centered on the gold standard, but which was then more vague.
http://www.amazon.com/The-Big-Reset-Financial-Endgame/dp/9089645993/?tag=misesinsti-20

Here's another quote:

There are only two options: a financial reset planned well in advance, or a hastily implemented one on the back of a dollar crisis. The United States, realizing the dollar will lose its prominent role, seems to be planning a monetary reset that will surprise many. It will be designed to keep the United States in the driving seat, but will include strong roles for the Euro and China’s Renminbi. And it is likely gold will be reintroduced as one of the pillars of this next phase of the global financial system. Insiders claim gold could be revalued up to $7,000 per troy ounce during this process.

With the current squeeze on the ruble, the Von MIses article pictured a different path, and the accumulation of gold by the Russians and the Chinese pointed to a possble shorter window for change, and less certainty about the US being in the driver's seat.

 

[M Paquette]

"What if Russia adopted the gold standard?"

The theory integrates the way that major countries like China would be affected, and the reason they would be accepting of this possible change from the US Dollar currency standard, to gold. A secondary, and possibly even more problematic point is about the speed in which the change would happen... and the effect on fiat currencies.

Mises Daily | Mises Institute

Oh, boy. Gold plus cutting-edge 19th century economic philosophy. What could possibly go wrong?

View attachment 21108

 

[-Jackson-]

I wonder if gold was actually used for regular transactions in the actual historic cases of hyperinflation that we know. Did people actually use gold in Germany in the early 1920's to go to the store to buy things or in Zimbabwe? Or did gold actually get used to buy everyday things during the tremendous rates of inflation in Argentina or Brazil? I've always felt that if it became widely known in times of social upheaval that I have lots of gold I might as well paint a bulls eye @ the back of my head.

This is the blog of a guy who lived in Argentina during the economic collapse. He has since moved and has written a couple books about his experiences there. So the blog has evolved significantly since he was originally recording his experiences. In the blog he has a number of posts about the use of gold.

SURVIVING IN ARGENTINA: gold

 

[ejman]

This is the blog of a guy who lived in Argentina during the economic collapse. He has since moved and has written a couple books about his experiences there. So the blog has evolved significantly since he was originally recording his experiences. In the blog he has a number of posts about the use of gold.

SURVIVING IN ARGENTINA: gold

Thanks for the link. It didn't seem from the part of the blog I read that he actually used gold (or silver) to directly purchase things but maybe I missed that entry. He does mention that one should be able to exchange gold for a local currency anywhere in the world and I would imagine that would be true but I would also guess the exchange rate might depend on how many goons are on the other side...

 

[-Jackson-]

Thanks for the link. It didn't seem from the part of the blog I read that he actually used gold (or silver) to directly purchase things but maybe I missed that entry. He does mention that one should be able to exchange gold for a local currency anywhere in the world and I would imagine that would be true but I would also guess the exchange rate might depend on how many goons are on the other side...

The format of his blog has changed a fair bit and I can't find some of the older posts. From what I remember, people didn't really make direct transactions with gold, or barter for gold. Though, I think there may have been some of that. I remember posts where he talked about barter markets or grey markets that popped up after the collapse. Cash was still the preferred currency, but some trading went on as well.

Keep in mind, this wasn't a total fantasy apocalypse. There were still people with jobs and regularish lives. The guy who wrote this blog described himself as "middle class" if I recall. Inflation was wild, the currency value fluctuated wildly. There was initial looting and rioting, but that subsided. He talks a fair bit about robbery and really high crime rates. We're not talking about living in a bunker or foraging in the woods, though.

As for gold, it sounds like people sold gold to jewelry or gold dealers to raise cash. Apparently many of these dealers popped up after the collapse to deal in gold and similar items. I remember old posts where he talks about keeping junk gold vs high-end coins for a couple reasons. I seem to remember him mentioning that many small dealers would value all the gold as junk gold anyway. Smaller amounts also made more sense than exchanging your gold in to an inflating and wildly fluctuating currency all in one shot. There are also security concerns with taking a briefcase full of gold coins down to the gold dealer.

He also talks a bit about keeping other paper currencies around to stabilizie the value of the savings. It was apparently common in Argentina for higher cost items to be priced in US dollars because of the peso fluctuations.

I couldn't find too many of the old posts I remember. I found these that might give some insights in to his use of gold:

SURVIVING IN ARGENTINA: About using gold or other forms of foreign currency after the crisis (old post)

SURVIVING IN ARGENTINA: Jewelry gold, on field test

SURVIVING IN ARGENTINA: Jewelry gold, on field test (Update)

SURVIVING IN ARGENTINA: Gold Coins Question

SURVIVING IN ARGENTINA: Precious Metals and running a Business after the Collapse

Scrap/junk gold as post SHTF "change" | The Modern Survivalist

 

[ejman]

The format of his blog has changed a fair bit and I can't find some of the older posts. From what I remember, people didn't really make direct transactions with gold, or barter for gold. Though, I think there may have been some of that. I remember posts where he talked about barter markets or grey markets that popped up after the collapse. Cash was still the preferred currency, but some trading went on as well.

Keep in mind, this wasn't a total fantasy apocalypse. There were still people with jobs and regularish lives. The guy who wrote this blog described himself as "middle class" if I recall. Inflation was wild, the currency value fluctuated wildly. There was initial looting and rioting, but that subsided. He talks a fair bit about robbery and really high crime rates. We're not talking about living in a bunker or foraging in the woods, though.

As for gold, it sounds like people sold gold to jewelry or gold dealers to raise cash. Apparently many of these dealers popped up after the collapse to deal in gold and similar items. I remember old posts where he talks about keeping junk gold vs high-end coins for a couple reasons. I seem to remember him mentioning that many small dealers would value all the gold as junk gold anyway. Smaller amounts also made more sense than exchanging your gold in to an inflating and wildly fluctuating currency all in one shot. There are also security concerns with taking a briefcase full of gold coins down to the gold dealer.

He also talks a bit about keeping other paper currencies around to stabilizie the value of the savings. It was apparently common in Argentina for higher cost items to be priced in US dollars because of the peso fluctuations.

I couldn't find too many of the old posts I remember. I found these that might give some insights in to his use of gold:

SURVIVING IN ARGENTINA: About using gold or other forms of foreign currency after the crisis (old post)

SURVIVING IN ARGENTINA: Jewelry gold, on field test

SURVIVING IN ARGENTINA: Jewelry gold, on field test (Update)

SURVIVING IN ARGENTINA: Gold Coins Question

SURVIVING IN ARGENTINA: Precious Metals and running a Business after the Collapse

Scrap/junk gold as post SHTF "change" | The Modern Survivalist

Thank you Jackson. These blogs give a much better flavor for how things might work under those circumstances. I hope we never ever get to anything like that here but I can now see where it might make sense to have a few thousand $ in small denomination gold/silver available outside the banking system.

 

[imoldernu]

Obviously the main concern here is always the effect on one's own personal wealth, which almost always turn to "how much gold to hold".

I would submit that this would be almost immaterial if global wealth were to be monetized.

Understanding negative interest rates is a good entry into understanding the possibility that this could happen.

While gold is the most obvious standard medium, it is not the only one.

This three year old article lays out projections that thusfar have not happened, but as far as I can see, there is no reason that the basic premise is not correct.EconoMonitor : EconoMonitor » Debt Monetization: From Tokyo to Washington and Brussels

Failed countries, failed economies and failed unions are headlined every day, and yet little has been said about the underlying financial struture being close to failure, except perhaps the recent staus of Greece. How much more unstated risk is involved? China, Russia, Venezeula, Japan, as well as many Middle East, Asian, African and South American countries.

It is not always the national debt of the countries... ie: Russia,with little longterm debt. but the instability of the governments.

The timetable is in the hands of the Central Banks...some living on a wish and a prayer.The IMF? Therein lies another deep study . Select your sources carefully.The magic continues... Another year? Another ten years? or tomorrow morning?

For every scholarly piece that backs the internationality of the money system, there is another the paints debt monetization as a pending disaster.

Little to be done at the individual level, excapt to watch for longer trends that could turn negative. In any case... the words to watch for are "debt monetization".

 

[ejman]

Well, I read the article you linked Imoldernu but I have to admit its as clear as mud to me. If what the author says is true Why is the dollar appreciating? why is Europe sliding into deflation? Why is inflation so subdued in the US? Why are commodity prices decreasing? Why aren't interest rates rising?