The gold bubble

[Neubarth]

Gold is a hedge against inflation not an investment. I treat gold as a saving account. IF 'the sh-t hits the fan' I have silver coin to use as a means of exchange in the short term.
Can anyone give me an explanation of how we are NOT going to have Hyper Inflation? The actions of our government have made it impossible to save the Dollar, IMO.
I may not have the higher education of many of you, I am just a Texas wood butcher (Carpenter), but I have looked at the consequences of monitay policy gone wild, as we have now in Washington and can find no instance where it worked.
I am 100% liquid in tangible assets (not cash, as in Federal Reserve Notes).
Perhaps I am too simple, but I just can not afford to lose 90% of my life savings to inflation.

I have been explaining this to people for the past quarter of a century. It is impossible for the US to have hyper inflation. We are the leading industrial country in the world, about twice the size of China. If the dollar deflates, our products become less expensive in the world economy, and we will grow our economy and the dollar will increase in value thereby.

Regardless of that, if the Dollar goes down in value, the countries like China and India that are exporting to us need us to be able to afford their product, so they will make certain that their currency goes down like ours does so we will continue to buy. Funny how that works. In that regard, the rest of the industrial world makes certain that the dollar does not fall.

Gosh, if hyperinflation of one currency was possible, everybody in the world would be driving Fords because they would be so inexpensive. and they would be flying only on Boeing Jets because they would be so inexpensive, and buying American tractors and American road building equipment and American............

 

[smithfix]

Gold is a hedge against inflation not an investment. I treat gold as a saving account. IF 'the sh-t hits the fan' I have silver coin to use as a means of exchange in the short term.
Can anyone give me an explanation of how we are NOT going to have Hyper Inflation? The actions of our government have made it impossible to save the Dollar, IMO.
I may not have the higher education of many of you, I am just a Texas wood butcher (Carpenter), but I have looked at the consequences of monitay policy gone wild, as we have now in Washington and can find no instance where it worked.
I am 100% liquid in tangible assets (not cash, as in Federal Reserve Notes).
Perhaps I am too simple, but I just can not afford to lose 90% of my life savings to inflation.

I have been explaining this to people for the past quarter of a century. It is impossible for the US to have hyper inflation. We are the leading industrial country in the world, about twice the size of China. If the dollar deflates, our products become less expensive in the world economy, and we will grow our economy and the dollar will increase in value thereby.

Regardless of that, if the Dollar goes down in value, the countries like China and India that are exporting to us need us to be able to afford their product, so they will make certain that their currency goes down like ours does so we will continue to buy. Funny how that works. In that regard, the rest of the industrial world makes certain that the dollar does not fall.

Gosh, if hyperinflation of one currency was possible, everybody in the world would be driving Fords because they would be so inexpensive. and they would be flying only on Boeing Jets because they would be so inexpensive, and buying American tractors and American road building equipment and American............

Leading industrial nation? in what exactly? Over regulation, highest corp. taxation, inability to supply our own energy (oil? coal? nuke? all politicly incorrect).
Just how much longer do you think we will be able to hold the spector of "If you don't loan me money I won't buy your products" threat over the heads of the new industrial super powers? - You know the ones who USE their resources for the good of their nations and laugh at the Al Gore coolaid drinkers.
Are you unaware of the moves toward the Dollar no longer being the reserve curreny for the world?
Do you really believe the rest of the world is so stupid as to stay tied to the Dollar as we make the word TRILLION common when discussing deficit spending?
I have to go to a family function so will check in this P.M. thanks for the discusson. (sorry for spelling errors- can't find the spellchecker while on this forum.)

 

[Neubarth]

Gold is a hedge against inflation not an investment. I treat gold as a saving account. IF 'the sh-t hits the fan' I have silver coin to use as a means of exchange in the short term.
Can anyone give me an explanation of how we are NOT going to have Hyper Inflation? The actions of our government have made it impossible to save the Dollar, IMO.
I may not have the higher education of many of you, I am just a Texas wood butcher (Carpenter), but I have looked at the consequences of monitay policy gone wild, as we have now in Washington and can find no instance where it worked.
I am 100% liquid in tangible assets (not cash, as in Federal Reserve Notes).
Perhaps I am too simple, but I just can not afford to lose 90% of my life savings to inflation.

I have been explaining this to people for the past quarter of a century. It is impossible for the US to have hyper inflation. We are the leading industrial country in the world, about twice the size of China. If the dollar deflates, our products become less expensive in the world economy, and we will grow our economy and the dollar will increase in value thereby.

Regardless of that, if the Dollar goes down in value, the countries like China and India that are exporting to us need us to be able to afford their product, so they will make certain that their currency goes down like ours does so we will continue to buy. Funny how that works. In that regard, the rest of the industrial world makes certain that the dollar does not fall.

Gosh, if hyperinflation of one currency was possible, everybody in the world would be driving Fords because they would be so inexpensive. and they would be flying only on Boeing Jets because they would be so inexpensive, and buying American tractors and American road building equipment and American............

Leading industrial nation? in what exactly? Over regulation, highest corp. taxation, inability to supply our own energy (oil? coal? nuke? all politicly incorrect).
Just how much longer do you think we will be able to hold the spector of "If you don't loan me money I won't buy your products" threat over the heads of the new industrial super powers? - You know the ones who USE their resources for the good of their nations and laugh at the Al Gore coolaid drinkers.
Are you unaware of the moves toward the Dollar no longer being the reserve curreny for the world?
Do you really believe the rest of the world is so stupid as to stay tied to the Dollar as we make the word TRILLION common when discussing deficit spending?
I have to go to a family function so will check in this P.M. thanks for the discusson. (sorry for spelling errors- can't find the spellchecker while on this forum.)

Nothing that you say has any relevance to the situation.

The US is the leading manufacturing country in the world twice the industrial size of China. If the dollar goes down in value, our products become cheaper that other countries products. That is an economic fact of life.

It does not matter one iota what currency is used in international trade.

 

[Toro]

On August 15, 1971, President Nixon suspended convertibility of dollars held by foreign central banks into gold, thus setting in motion the greatest orgy of credit creation the world has ever seen, arguably culminating in the credit crisis of 2008.

Using end of month levels, at the end of August 1971, the S&P 500 was 99.03 and gold was $42.73. At the end of November 2009, the S&P 500 was 1095.63 while gold was $1173.52. Over that time period, the S&P 500 price index returned 1006%, or 6.5% annually, whereas gold rose 2646%, or 9.0%. On a price basis, gold has handily beaten stocks.

Of course, price appreciation is only a part of the return on equities. Stocks pay dividends. If one includes dividends reinvested, stocks returned 4192%, or 10.3%, besting gold, although not by as much as one might expect.

More interestingly, there have been long time periods when stocks and gold have outperformed relative to each other. Upon suspending gold convertibility, gold began outperforming stocks almost immediately. From September 1971 through September 1980, stocks returned 27% including dividends reinvested, or 2.6% per year. Gold rose 1460%, or 35% per year.

Stocks started to outperform gold in October of 1980, and did so for two decades until August 2000, returning 2429% including dividends reinvested, or 17.6% per year. Gold was a dog, declining 58%, or 4.3% per year.

Relative performance turned once again in September of 2000 and has continued ever since. Total returns including dividends for equities up to the end of November of this year has been -18%, or -2.1% per year. Gold has been a big winner, rising 323%, or 16.9% per year.

Everything has its time and place. Wall Street will tell you that you should always be in stocks. They are dead wrong. Stocks have been horrible investments at various times throughout history. Likewise, there have been great times to own gold and other times when you do not want to own an ounce of the stuff.

Gold may be topping. I do not think it is, but we must be aware that it might be. When it does top, you want to be as far, far away as possible, just like any other asset, including stocks.

UPDATE Going back to September 1971, I constructed a portfolio of stocks and gold, investing half in stocks and half in gold at the beginning of each year. If stocks outperformed gold, then at the beginning of each year, stocks were sold and the corresponding amount was bought for gold such that the portfolio was rebalanced to an equal weight between the two.

This portfolio out-gained both stocks and gold, rising 5620%, or 11.2% per year. Volatility was less at 15.4% for the portfolio whereas volatility for stocks was 18.3% and for gold 29.1%.

There were only seven years when the portfolio generated a loss, and only two a double-digit loss; -18.5% in 1981 and -16.7% in 2008. The average loss for the seven negative years was -8.2%.

Stocks had nine losing years, with five years of double-digit losses, including -25.9% in 1974, -21.7% in 2002 and -38.5% in 2008. The average decline was -15%.

There were more negative years for gold, 14 in total, but the average decline was less than stocks at -11.8%. There were six years of double-digit losses, including -23.7% in 1975, -32.6% in 1981, and -22.2% in 1997.

 

[Toro]

For the record, I sold all my silver options today. I own no silver or gold.

 

[Zander]

For the record, I sold all my silver options today. I own no silver or gold.

I think you'll be glad of that very soon. What about equities? I see a big drop coming soon.

 

[uscitizen]

I have sold no gold. I gave away a few eagles for Christmas though.
I am pretty safe I have a bit over $600 per Eagle invested/saved.

 

[Toro]

For the record, I sold all my silver options today. I own no silver or gold.

I think you'll be glad of that very soon. What about equities? I see a big drop coming soon.

Maybe. We're due for a correction, and the action was poor today. I've been selling down my stocks though that's because they are hitting my price targets, and I am looking to add some small community banks on any pullback. But my equity exposure is way down. I put a short on the euro today as well.

 

[Toro]

Gold hit $1232 today, an all-time high.

I'm talking my book as I had been purchasing gold calls the past few weeks.

 

[manu1959]

Gold hit $1232 today, an all-time high.

I'm talking my book as I had been purchasing gold calls the past few weeks.

good thing you didn't follow the davids' prediction that inflation would hit and gold would be 900....

 

[Paulie]

I'm not sure how with the current monetary policy, anyone could be anything other than bullish on metals.

 

[Toro]

I don't like to make predictions because predictions make people look stupid - and I don't need any help doing that - but I would not be in the least bit surprised if gold was higher, substantially higher, in the future.

 

[Zander]

I don't like to make predictions because predictions make people look stupid - and I don't need any help doing that - but I would not be in the least bit surprised if gold was higher, substantially higher, in the future.

I agree, but would add that I would not be the least bit surprised of gold is lower, substantially lower, in the future. The point is that we never really know what will happen, do we? That is why most people diversify amongst asset classes.

 

[Paulie]

I don't like to make predictions because predictions make people look stupid - and I don't need any help doing that - but I would not be in the least bit surprised if gold was higher, substantially higher, in the future.

I agree, but would add that I would not be the least bit surprised of gold is lower, substantially lower, in the future. The point is that we never really know what will happen, do we? That is why most people diversify amongst asset classes.

god, that's so BORING though

 

[Toro]

I don't like to make predictions because predictions make people look stupid - and I don't need any help doing that - but I would not be in the least bit surprised if gold was higher, substantially higher, in the future.

I agree, but would add that I would not be the least bit surprised of gold is lower, substantially lower, in the future. The point is that we never really know what will happen, do we? That is why most people diversify amongst asset classes.

We don't ever know what will happen in the future, but we can make calculated assessments of probability. And I assess that the probability of rising gold prices are higher than falling gold prices, at least in the near and intermediate-term.

 

[P F Tinmore]

Whyizzit that gold sellers are telling you that the value of gold is going up up up. And that the value of the dollar is going down down down.

Then they want to sell you their valuable gold for your worthless dollars.

?????

 

[Toro]

This is what a bull market looks like.

Gold is getting a bit ahead of itself but it shows no signs of slowing down.

 

[Paulie]

This is what a bull market looks like.

Gold is getting a bit ahead of itself but it shows no signs of slowing down.

It ain't going anywhere but up unless the Fed starts selling a worthwhile amount of assets.

 

[Zander]

I don't like to make predictions because predictions make people look stupid - and I don't need any help doing that - but I would not be in the least bit surprised if gold was higher, substantially higher, in the future.

I agree, but would add that I would not be the least bit surprised of gold is lower, substantially lower, in the future. The point is that we never really know what will happen, do we? That is why most people diversify amongst asset classes.

god, that's so BORING though

It is Boring, but it usually makes you more money. Most investors fail to even match the market returns. They buy high and sell low. They chase returns and "hot" asset classes (like gold), they pay managers to tell them what to do, and end up losing money.

Indexing beats 80% of the mutual fund managers out there so why even screw around trying to pick a mutual fund? You go ahead and buy any actively managed mutual fund you want, I'll buy the matching index fund. wake me up in ten years and I have an 80% chance of beating you. I'll take those odds any day.

PS- When I want excitement I go to a hockey game.

 

[Toro]

I agree, but would add that I would not be the least bit surprised of gold is lower, substantially lower, in the future. The point is that we never really know what will happen, do we? That is why most people diversify amongst asset classes.

god, that's so BORING though

It is Boring, but it usually makes you more money. Most investors fail to even match the market returns. They buy high and sell low. They chase returns and "hot" asset classes (like gold), they pay managers to tell them what to do, and end up losing money.

Indexing beats 80% of the mutual fund managers out there so why even screw around trying to pick a mutual fund? You go ahead and buy any actively managed mutual fund you want, I'll buy the matching index fund. wake me up in ten years and I have an 80% chance of beating you. I'll take those odds any day.

PS- When I want excitement I go to a hockey game.

I wouldn't recommend most actively managed funds.

I think a good way to manage asset allocation is to have a target, then trade around that target. For example, if your asset allocation is 50% stocks and 50% bonds, you rebalance in a band, i.e. +-10%. So if your portfolio becomes 40% stocks and 60% bonds, you sell 10% of bonds and buy 10% stocks to get back to 50/50.

A better way, I think, is to trade around valuations. So when stocks get expensive, you sell to some target, and when they get cheap, you buy to some target.