The gold bubble

[Toro]

Gold and other precious metals have their place in a portfolio - a very small percentage for prudent investors (I recommend 5% to 10% maximum).

Tell me Toro, how many dividends did gold pay over the last 40 years? ZIP, NADA, NIL, ZERO. You can't just exclude S&P 500 dividends from your analysis and expect to be taken seriously.

I agree that Gold has outperformed over the last few years. That alone is a compelling reason to sell and re-balance after this run-up. The axiom, "Buy low, sell high" comes to mind. Re-balancing a portfolio forces an investor to do just that. Best of luck with your gambling.

I am fully aware that one includes dividends reinvested when calculating returns. However, it was you who was being being derisive towards gold, not me towards stocks or any other investment. The fact that gold so decisively beaten the stock indices proves my point - there is a time and a place for everything. Since 1970, gold has risen about 9% compounded, which is slightly less than the long-term compounded average return for stocks including dividends reinvested, beating bonds and real estate.

Sure, if you are a long term investor, i.e. the next 10 years, you might want to own stocks over gold. Over the next 100 years, I would rather own stocks. But if I am highly confident that I can make a lot of money in gold in a fairly short period of time - as I already have and expect to continue to do so - then I would be a fool not to. And I would apply that standard to any investment. I was pounding the table on stocks in these pages six months ago when the median price/earnings ratio on stocks in the Russell 2000 was less than 6x, and less than 8x on the S&P 500, a generational low. If you know what you are doing - meaning if you know how to trade and protect yourself - I think you can make a lot of money in gold from these levels IMHO. But you have to know what you are doing. And that ain't gambling.

 

[Toro]

I kind of like how Zander thinks $250 and ounce is "in the toilet", considering it was originally fixed at $35.

Your facts are incorrect. Gold had a "fixed value" of $20.67 per troy ounce for 96 years from 1837 to 1933. In 1934 FDR Devalued the dollar by 67% by raising the fixed price of gold to $35.00 per oz. It remained that way until Nixon took the US off of the gold standard. The dollar has devalued 96% since 1913. That means Gold should be approximately 25x higher than it's $20.67 fixed price. It is 55x higher. Do the math Paulie, it's not too hard to figure out.

At any rate, If you bought gold in 1980 at $700 per ounce. You would have watched it fall to $250.00 per oz in 2001 and you'd have waited more than 28 years just to recoup your original investment. If you think that is a smart investment, buy gold today. Buy as much as you can!! GOLD!!!!!

I'm bullish on gold for one reason, Zander:

And most of that was done when gold was already priced around $900.

You explain to me how the Fed is going to exit from that without causing inflation the likes of which we may have never seen, and I might consider changing my mind.

The fundamentals are very much behind gold. There will come a time when you want to be as far away from the metal, but now isn't that time.

 

[Zander]

I kind of like how Zander thinks $250 and ounce is "in the toilet", considering it was originally fixed at $35.

Your facts are incorrect. Gold had a "fixed value" of $20.67 per troy ounce for 96 years from 1837 to 1933. In 1934 FDR Devalued the dollar by 67% by raising the fixed price of gold to $35.00 per oz. It remained that way until Nixon took the US off of the gold standard. The dollar has devalued 96% since 1913. That means Gold should be approximately 25x higher than it's $20.67 fixed price. It is 55x higher. Do the math Paulie, it's not too hard to figure out.

At any rate, If you bought gold in 1980 at $700 per ounce. You would have watched it fall to $250.00 per oz in 2001 and you'd have waited more than 28 years just to recoup your original investment. If you think that is a smart investment, buy gold today. Buy as much as you can!! GOLD!!!!!

I'm bullish on gold for one reason, Zander:

And most of that was done when gold was already priced around $900.

You explain to me how the Fed is going to exit from that without causing inflation the likes of which we may have never seen, and I might consider changing my mind.

I've already explained it. The dollar has devalued 96% since 1913. On that basis, Gold should be 25x the 1913 price - it is 55x higher. Therefore it is overvalued in my opinion. Don't let my opinion stop you from buying though. Put everything you've got into it for all I care. Seriously, I really don't care what you or anyone else does with your own money. I am merely stating my opinion and giving my rationale for holding that opinion.

 

[Zander]

Gold and other precious metals have their place in a portfolio - a very small percentage for prudent investors (I recommend 5% to 10% maximum).

Tell me Toro, how many dividends did gold pay over the last 40 years? ZIP, NADA, NIL, ZERO. You can't just exclude S&P 500 dividends from your analysis and expect to be taken seriously.

I agree that Gold has outperformed over the last few years. That alone is a compelling reason to sell and re-balance after this run-up. The axiom, "Buy low, sell high" comes to mind. Re-balancing a portfolio forces an investor to do just that. Best of luck with your gambling.

I am fully aware that one includes dividends reinvested when calculating returns. However, it was you who was being being derisive towards gold, not me towards stocks or any other investment. The fact that gold so decisively beaten the stock indices proves my point - there is a time and a place for everything. Since 1970, gold has risen about 9% compounded, which is slightly less than the long-term compounded average return for stocks including dividends reinvested, beating bonds and real estate.

Sure, if you are a long term investor, i.e. the next 10 years, you might want to own stocks over gold. Over the next 100 years, I would rather own stocks. But if I am highly confident that I can make a lot of money in gold in a fairly short period of time - as I already have and expect to continue to do so - then I would be a fool not to. And I would apply that standard to any investment. I was pounding the table on stocks in these pages six months ago when the median price/earnings ratio on stocks in the Russell 2000 was less than 6x, and less than 8x on the S&P 500, a generational low. If you know what you are doing - meaning if you know how to trade and protect yourself - I think you can make a lot of money in gold from these levels IMHO. But you have to know what you are doing. And that ain't gambling.

Best of luck with your gambling.

 

[Paulie]

Your facts are incorrect. Gold had a "fixed value" of $20.67 per troy ounce for 96 years from 1837 to 1933. In 1934 FDR Devalued the dollar by 67% by raising the fixed price of gold to $35.00 per oz. It remained that way until Nixon took the US off of the gold standard. The dollar has devalued 96% since 1913. That means Gold should be approximately 25x higher than it's $20.67 fixed price. It is 55x higher. Do the math Paulie, it's not too hard to figure out.

At any rate, If you bought gold in 1980 at $700 per ounce. You would have watched it fall to $250.00 per oz in 2001 and you'd have waited more than 28 years just to recoup your original investment. If you think that is a smart investment, buy gold today. Buy as much as you can!! GOLD!!!!!

I'm bullish on gold for one reason, Zander:

And most of that was done when gold was already priced around $900.

You explain to me how the Fed is going to exit from that without causing inflation the likes of which we may have never seen, and I might consider changing my mind.

I've already explained it. The dollar has devalued 96% since 1913. On that basis, Gold should be 25x the 1913 price - it is 55x higher. Therefore it is overvalued in my opinion. Don't let my opinion stop you from buying though. Put everything you've got into it for all I care. Seriously, I really don't care what you or anyone else does with your own money. I am merely stating my opinion and giving my rationale for holding that opinion.

I understand where you're coming from, believe me. In normal times, your mathematical analysis of gold valuation would make sense, but these aren't normal times. We're looking at something really serious coming our way in the next couple years. Not investing in some kind of inflation hedge is betting that the Fed gets it exactly right, and I don't know about you, but I don't trust them as far as I can throw them. They screw up every single time they're faced with an exit strategy such as this.

Gold will correct at some point, I'm almost positive. But in my OPINION, there's going to be all the reason in the world to own gold in the foreseeable future.

 

[Zander]

I'm bullish on gold for one reason, Zander:

And most of that was done when gold was already priced around $900.

You explain to me how the Fed is going to exit from that without causing inflation the likes of which we may have never seen, and I might consider changing my mind.

I've already explained it. The dollar has devalued 96% since 1913. On that basis, Gold should be 25x the 1913 price - it is 55x higher. Therefore it is overvalued in my opinion. Don't let my opinion stop you from buying though. Put everything you've got into it for all I care. Seriously, I really don't care what you or anyone else does with your own money. I am merely stating my opinion and giving my rationale for holding that opinion.

I understand where you're coming from, believe me. In normal times, your mathematical analysis of gold valuation would make sense, but these aren't normal times. We're looking at something really serious coming our way in the next couple years. Not investing in some kind of inflation hedge is betting that the Fed gets it exactly right, and I don't know about you, but I don't trust them as far as I can throw them. They screw up every single time they're faced with an exit strategy such as this.

Gold will correct at some point, I'm almost positive. But in my OPINION, there's going to be all the reason in the world to own gold in the foreseeable future.

Then by all means buy buy buy!!! Buy as much as you can!!!

Just remember, the last time we had this much irrational exuberance about gold, it took 29 years just to break even.

 

[Zander]

Gold and other precious metals have their place in a portfolio - a very small percentage for prudent investors (I recommend 5% to 10% maximum).

Tell me Toro, how many dividends did gold pay over the last 40 years? ZIP, NADA, NIL, ZERO. You can't just exclude S&P 500 dividends from your analysis and expect to be taken seriously.

I agree that Gold has outperformed over the last few years. That alone is a compelling reason to sell and re-balance after this run-up. The axiom, "Buy low, sell high" comes to mind. Re-balancing a portfolio forces an investor to do just that. Best of luck with your gambling.

I am fully aware that one includes dividends reinvested when calculating returns. However, it was you who was being being derisive towards gold, not me towards stocks or any other investment. The fact that gold so decisively beaten the stock indices proves my point - there is a time and a place for everything. Since 1970, gold has risen about 9% compounded, which is slightly less than the long-term compounded average return for stocks including dividends reinvested, beating bonds and real estate.

Sure, if you are a long term investor, i.e. the next 10 years, you might want to own stocks over gold. Over the next 100 years, I would rather own stocks. But if I am highly confident that I can make a lot of money in gold in a fairly short period of time - as I already have and expect to continue to do so - then I would be a fool not to. And I would apply that standard to any investment. I was pounding the table on stocks in these pages six months ago when the median price/earnings ratio on stocks in the Russell 2000 was less than 6x, and less than 8x on the S&P 500, a generational low. If you know what you are doing - meaning if you know how to trade and protect yourself - I think you can make a lot of money in gold from these levels IMHO. But you have to know what you are doing. And that ain't gambling.

I am not derisive towards gold. I clearly stated that there is a place for it in an investment portfolio. I simply believe it is overvalued. You disagree. That is how the market works.

 

[Toro]

I am not derisive towards gold. I clearly stated that there is a place for it in an investment portfolio. I simply believe it is overvalued. You disagree. That is how the market works.

You might be right, I don't know. Maybe gold is over-valued, though Paul Tudor Jones in the link above thinks it isn't, and shows why.

The Nasdaq was overvalued at 2500 in 1998, then went to stupid overvalued at 5132 in 2000. It collapsed down to 1200. Today its pushing 2200. If you knew how to trade it, you made a lot of money. That's why you have to know what you are doing.

Eventually, gold will collapse too. But contrary to the OP, gold hasn't even begun to act like its in a bubble. Not even close. This is still a bull market.

 

[Paulie]

I've already explained it. The dollar has devalued 96% since 1913. On that basis, Gold should be 25x the 1913 price - it is 55x higher. Therefore it is overvalued in my opinion. Don't let my opinion stop you from buying though. Put everything you've got into it for all I care. Seriously, I really don't care what you or anyone else does with your own money. I am merely stating my opinion and giving my rationale for holding that opinion.

I understand where you're coming from, believe me. In normal times, your mathematical analysis of gold valuation would make sense, but these aren't normal times. We're looking at something really serious coming our way in the next couple years. Not investing in some kind of inflation hedge is betting that the Fed gets it exactly right, and I don't know about you, but I don't trust them as far as I can throw them. They screw up every single time they're faced with an exit strategy such as this.

Gold will correct at some point, I'm almost positive. But in my OPINION, there's going to be all the reason in the world to own gold in the foreseeable future.

Then by all means buy buy buy!!! Buy as much as you can!!!

Just remember, the last time we had this much irrational exuberance about gold, it took 29 years just to break even.

Has the Fed ever had this many facilities at one time to exit from?

Has their balance sheet ever looked like this?

I don't see a point in history that can be compared to what they're up against besides the GD, and FDR took everyone's gold. Why do you think that was?

By the way, I'm not buying gold. I have maybe 10% of my savings in metals, I sold a bunch of my silver a little while back at $17.50

 

[FactFinder]

All of the gold hype is based on the 'belief' that there will be inflation due to the Fed printing money. Ah, but where is that money going? Well the lion's share is going to shore up and increase bank reserves. Money sitting in reserves is not inflationary.
so in my view all those currently caught up in the hype are in danger of acquiring fool's gold.

I think we are going to have some inflation but it will likely be a controlled inflation. That was already priced into gold some time ago.

 

[Paulie]

All of the gold hype is based on the 'belief' that there will be inflation due to the Fed printing money. Ah, but where is that money going? Well the lion's share is going to shore up and increase bank reserves. Money sitting in reserves is not inflationary.
so in my view all those currently caught up in the hype are in danger of acquiring fool's gold.

I think we are going to have some inflation but it will likely be a controlled inflation. That was already priced into gold some time ago.

That money isn't moving yet because we're just now starting to see 'recovery'.

The fed has to exit perfectly, otherwise that money can and will be lent out when demand picks up.

I personally think the banks are 'playing' with a lot of that money, myself. That might be where a lot of this market boom has come from.

 

[FactFinder]

All of the gold hype is based on the 'belief' that there will be inflation due to the Fed printing money. Ah, but where is that money going? Well the lion's share is going to shore up and increase bank reserves. Money sitting in reserves is not inflationary.
so in my view all those currently caught up in the hype are in danger of acquiring fool's gold.

I think we are going to have some inflation but it will likely be a controlled inflation. That was already priced into gold some time ago.

That money isn't moving yet because we're just now starting to see 'recovery'.

The fed has to exit perfectly, otherwise that money can and will be lent out when demand picks up.

I personally think the banks are 'playing' with a lot of that money, myself. That might be where a lot of this market boom has come from.

Reserves are just that...reserves. They may lend again when they have the reserves to back them up. The lending will have to come from non reserve funds. At any rate the extra amounts required absorb much if not most of the printing.

I agree that much of the stock market build up is coming from a merry go around amongst financial institutions.

 

[Paulie]

All of the gold hype is based on the 'belief' that there will be inflation due to the Fed printing money. Ah, but where is that money going? Well the lion's share is going to shore up and increase bank reserves. Money sitting in reserves is not inflationary.
so in my view all those currently caught up in the hype are in danger of acquiring fool's gold.

I think we are going to have some inflation but it will likely be a controlled inflation. That was already priced into gold some time ago.

That money isn't moving yet because we're just now starting to see 'recovery'.

The fed has to exit perfectly, otherwise that money can and will be lent out when demand picks up.

I personally think the banks are 'playing' with a lot of that money, myself. That might be where a lot of this market boom has come from.

Reserves are just that...reserves. They may lend again when they have the reserves to back them up. The lending will have to come from non reserve funds. At any rate the extra amounts required absorb much if not most of the printing.

I agree that much of the stock market build up is coming from a merry go around amongst financial institutions.

Lending can come from any reserves in excess of the minimum reserve requirement. Each institution's position regarding this is different. Bank A may have excess reserves while Bank B may not.

 

[uscitizen]

"investing" is always gambling.

I made around 100% on my gold over 2 years. I also lost nothing during the finiancial downturn.
Becuase I saw it coming and prepared for it.

 

[Zander]

"investing" is always gambling.

I made around 100% on my gold over 2 years. I also lost nothing during the finiancial downturn.
Becuase I saw it coming and prepared for it.

Forgive me if I have my doubts. I think you're full of baloney.

 

[uscitizen]

"investing" is always gambling.

I made around 100% on my gold over 2 years. I also lost nothing during the finiancial downturn.
Becuase I saw it coming and prepared for it.

Forgive me if I have my doubts. I think you're full of baloney.

I bought gold eagles at a bit over $600 each in a private transaction and moved all my other investments to safe guaranteed (albeit lower gain) places.

Believe what you want, I made my money off of the peak of the real estate/investment bubble and then moved to safe hidey holes.

It was amazing how much money one could make off of penny stocks. Sure they only cost .50/share, but a month later it was .75 for example. I had lots of fun gambling while everyone was pumping the market up far beyond it's real value.

 

[Neubarth]

I bought gold eagles at a bit over $600 each in a private transaction and moved all my other investments to safe guaranteed (albeit lower gain) places.

Believe what you want, I made my money off of the peak of the real estate/investment bubble and then moved to safe hidey holes.

It was amazing how much money one could make off of penny stocks. Sure they only cost .50/share, but a month later it was .75 for example. I had lots of fun gambling while everyone was pumping the market up far beyond it's real value.

I would be reluctant to do that. My luck on small stocks is untested as I am afraid to even try to put my money there. I think they fall into the same category as "Easy Women." My Daddy told me when I was a young buck that there were lots of easy women in the world, and I could enjoy their pleasures if I wanted, BUT sometimes your health can be at stake as you have no idea what she may have encountered in her life and what she might share with you.

Well I was a sailor right out of high school, and started enjoying those easy women (Hell, I was "dating" all the pretty strippers I could find.) for a season until I had to get a bunch of penicillin in my butt cheek.

Ever since then, I have been afraid of easy women and cheap stocks. I think there is a relationship. Laugh if you will, but sometimes young bucks need to learn their lessons the hard way. Sometimes, those lessons are the best learned ones in life.

I don't recommend learning that way for the rest of you guys.

 

[JW Frogen]

I know jack shit about commodity prices but I do know the law of supply and demand and at these prices Western Australia will be gearing up even more to dig the precious rock out of the ground because we have shitloads of it.

Uranium and Iron too, and just about every other precious metal or rock on the planet.

Now, if we just had water.

 

[Neubarth]

I know jack shit about commodity prices but I do know the law of supply and demand and at these prices Western Australia will be gearing up even more to dig the precious rock out of the ground because we have shitloads of it.

Uranium and Iron too, and just about every other precious metal or rock on the planet.

Now, if we just had water.

Desalinization is getting less and less expensive, especially if you use the sun to preheat sea water if your are boiling the water to separate it from the salt.

 

[Toro]

Maybe gold isn't in a bubble. Maybe it's dramatically undervalued and should be priced at $6300!

SocGen On Gold Mania, And Why Gold Is Very, Very Cheap | zero hedge