Gold

[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]

Quote:

Originally Posted by wab 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]

Quote:

Originally Posted by bearkeley 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]

Quote:

Originally Posted by 3 Yrs to Go 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]

Quote:

Originally Posted by Focu$ed 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:

Quote:

Originally Posted by Focu$ed 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]

Quote:

Originally Posted by Focu$ed 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]

Quote:

Originally Posted by REWahoo! "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.

[mathjak107]

Quote:

Originally Posted by 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. :-/

thats the point..thru it all an ounce of gold still buys the same thing it did back then..and yes thats tame inflation...look at a graph from the highs of the 70's and its a slope downward as hard as it is to believe all the way until just around the early 2,000's..you can ski down that slope the cpi dropped so much...although we are still shocked at the price increases even with the slope they have been mild in comparison to what would have been if the slope wasnt downward...since gold is a competitor and alternate currency to the dollar it would take alot more to push gold higher beyond just being the store of value that it is...does it track inflation exactly noooooooo but for the most part does it still buy the same goods with 1 ounce of it for the last 100 years? yep pretty darn close

[Gone4Good]

Quote:

Originally Posted by Focu$ed I would hardly liken investing in gold, copper, uranium, silver etc. to investing in tulip bulbs.

Why?

[cute fuzzy bunny]

Quote:

Originally Posted by mathjak107 thats the point..thru it all an ounce of gold still buys the same thing it did back then..and yes thats tame inflation...look at a graph from the highs of the 70's and its a slope downward as hard as it is to believe all the way until just around the early 2,000's..you can ski down that slope the cpi dropped so much...although we are still shocked at the price increases even with the slope they have been mild in comparison to what would have been if the slope wasnt downward...since gold is a competitor and alternate currency to the dollar it would take alot more to push gold higher beyond just being the store of value that it is...does it track inflation exactly noooooooo but for the most part does it still buy the same goods with 1 ounce of it for the last 100 years? yep pretty darn close

I must need another cup of coffee, because all i see is a high spike of both gold prices and CPI in the late 70's/early 80s. An annual CPI factor of ~3.5% which often fails to reflect true inflation. And the price of gold sitting there doing absolutely nothing between that late 70's spike and the past few years.

I dont see the price of gold showing ANY correlative factors since that one high inflationary period shortly after the nixon 1971 decision. And I dont think that 30-35% per decade is "tame".

Now, if you argued that inflation is more consistent year on year than its been in the past, where we had rollercoaster rides into 10-15% inflation amidst periods of zero inflation or deflation as deep as 5-10%...that I'd agree with.

And if you pointed out that gold prices rolled with inflation (and deflation) while it was either closely or loosely coupled with our currency (which was more than 3 decades ago), then that would be born out by the data as well.

But I cant call 2-5%, averaging 3.5%, for the last 20+ years to be "tame" compared to...gee...3.5% annualized average for the last 100...

As far as golds purchasing power, while we saw that 3.5% average a year for the last 20 years, the price of gold during this slow and steady trend upwards went absolutely nowhere. No correlation at all. So the thesis that an ounce of gold always bought the same is unsupported by the data.

[cute fuzzy bunny]

Interesting stuff...look at the chart below. Shows the "purchasing power of gold" which measures the price of gold vs the wholesale price index.

This is from a "goldbugs" newsletter and is is his measurement for the stability of gold

What I see is huge volatility that runs for decades. In fact, his primary point in referencing this chart is

"As the chart demonstrates, gold always returns to its full purchasing power, although sometimes it may take several decades to do so."

I've never really evaluated or discussed the gold investment thing. So work with me here...is the chief argument that the metal will more or less hold its purchasing power, except for the decades at a time where it doesnt?

And thats better than the stock market, which grows its purchasing power incrementally over decades, and only has problems during a couple of decades when it was in decline, after which it always recovered and then some?

I also saw a lot of nostalgic references to the prior use of gold as a monetary standard, which is interesting, but doesnt apply any longer so I'm confused as to why its used as an argument at all or even a discussion point.

So let me get this straight...the metal is only used for jewelry and some electronics manufacturing processes. Except for two spikes, one during high inflation and one in the absence of high inflation, the price has gone nowhere for 3 decades. It shows no strong recent correlation with inflation, recessions or really any other major economic indicators. Note the words 'strong' and 'recent'. I'm not interested in how it behaved in the 30's or the 1790's.

Why do I want to own this again?

[brewer12345]

Simple, CFB.* Either you are a true believer and want gold! gold! gold! (oh, and maybe some silver or platinum), or you are a rational person.* Most of the latter view gold as just another commodity subject to the usual supply/demand equation and sometimes prone to periods of particular scarcity or abundance,* Might be worth a little as a speculative thing (an the full moon is coming soon), but other than that...

I think other commodities potentially make a lot more sense than holding gold.* After all, you can't eat it, use it for fuel, or do much with it.* Compared to most other commodities, it is pretty useless.

[Lusitan]

Quote:

Originally Posted by mb 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.

Very interesting point, MB. As technology has progressed, the actual valuable uses of gold have diminished.

Some of the remaining cultural uses are still potentially quite powerful - I've read how the emerging middle class in India will increase the consumption of gold to decorative use, as gold jewelry is a big part of their culture.

But it does make you wonder what (if anything) might be a candidate to replace gold as the most "valuable stuff" to today's society ... frankly, I'm not sure that a shiny malleable metal has that much value (given the amount of shiny crap that we make dirt cheap these days) ... but what does? Hmmmmmm ...

[cute fuzzy bunny]

Quote:

Originally Posted by brewer12345 I think other commodities potentially make a lot more sense than holding gold. After all, you can't eat it, use it for fuel, or do much with it. Compared to most other commodities, it is pretty useless.

I guess after the economy collapses, you could throw chunks of it at intruders or hit someone in the head with it and take their food.

Heres the good question though.

I listen to the "buy gold" argument, and its usually coupled with concerns about stock market high valuations. The "stable purchasing power" is also used heavily, although that appears to be far from the truth.

From this chart, its pretty obvious that gold is way overpriced vs its purchasing power. So given the data it would be fairly obvious that it will return to its "mean" shortly. And every peak seems to be followed by one heck of a valley.

So why would you eschew the perhaps slightly overvalued stock market for severely overvalued gold?

Buying it right now looks like a great way to lose money. Maybe slowly. Maybe uncorrelated from other assets. Unless we see huge inflationary pressures and gold doesnt react to those in a negative manner. Considering its lack of strong correlation to economic conditions over the last 3 decades, I wouldnt exactly count on that.

[mathjak107]

http://www.gold-eagle.com/editorials...use102503.html
the cpi vs gold pricing doesnt look to far off.................

[cute fuzzy bunny]

That chart is of CPI adjusted federal funds rate. I have no idea what that has to do with the price of gold vs its purchasing power, its correlation to inflation, or actually...anything at all.

Please explain.

[mathjak107]

interest rates and the cpi historically flow together.....the higher the cpi the higher the feds fund rate...an index can actually be constructed by merging the 2.