This paraphrases the wisdom on the front page of the MSN site today. Jim Jubak thinks it will go up and Tim Middleton not only thinks it is topped out but he also thinks it is useless as an asset class.
Wow.
Like anyone who sticks his neck out with predictions, both make good calls and bad calls. One obvious flaw I think I see in both pieces is that they look at gold as stand-alone. Middleton does touch on the portfolio role of gold at one point. He is convinced that the gold as a hedge against paper assets-low correlation theme is broken.
He believes part of the distortion has come from the streetTracks Gold Trust (GLD), which is a client holding. He quotes an OEF manager as saying ETF demand does matter and says ETFs account for 13%-14% of what gets mined every year. I went to a presentation put on by the World Gold Council, their numbers say they account for closer to 10% of what gets mined every year. You can decide for yourself how important this is.
I am hard pressed to think that gold no longer fills the bill it once did based on a couple of months worth of trading. In fact, I think it could be argued that equities and gold still have a low correlation. Over the three months, GLD is up 15% and the S+P 500 is up about 3%.
If you are trying to time gold aggressively, you have chosen a difficult path. If you want have gold as part of your counter strategy you will have periods like the last few months where gold gives a surprising run and an asset class that will likely go up the next time something bad happens in this country.
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
10 comments:
Historically, gold has been a terrible investment. But that is in the past ( historical ). It is going to dawn on us one day that our government prints money anytime it wants to....inflation. Our money is worth less today than before they printed the last batch.
If the Chinese decide to "back" their currency with gold as we decide not to...and we keep printing money with no backing. Guess what will happen.
I'm not saying "it's different this time"..all I'm saying is that with all the money we are sending to China, suppose they decide to stop buying US Treasuries and instead buy gold.
g
I sold some gold shares a few weeks ago because my allocation had grown too large and the sector appeared overbought; I’m buying some back now for the opposite reasons. I’ll probably be doing the same with oil soon. Just the nature of the discipline in that part of my portfolio at least: no predictions, just an opinion on macro-economic factors, acceptable allocation range, trend line and RSI.
GLD may be skewing things a bit but I believe that just introduces some additional bias up (piling on) or down (panic). I do not believe the role of gold in portfolio construction has materially changed (pardon the pun) but who knows.
RW
great comments, thank you.
RW gives a great example of discipline. it is easier to be a do-it-yourselfer by staying disciplined.
I don't recall George being so gloomy before but some changes along these lines seem to be coming even if the magnitude is uncertain.
Yeah...Guess it sounded a little "Granthamish"...maybe a better way to look at it is not to sound like
Chicken Little, but to say that maybe that 5% allocation will pay off big one day, and if it doesn't-----that means the other 95% did great.
I'll add this, though, the gold ETFs have made it possible for a lot of investors to participate. I think that is good.
g
I often wonder if unseen market forces are dragging us all into a common world currency at some point down the road?
I am constantly amazed that I can converse in English at the far corners of the globe.
It feels that political power and global finance is currently going through some kind of shift and so perhaps Gold is a temporary store of value during this transition until it is clear what comes out the other end?
-Alex
Good observation, Alex. Thanks.
It’s tough for any one asset class to be used as a long-term (multi-decade) investment vehicle. Each asset class has cycles of undervaluation and overvaluation. Each undervaluation or overvaluation may be decade-long or more. So, the question for investors is whether they can wait out a price correction of an overvaluation. Given how long most of us plan on working, most of us can’t wait out such a price correction. To use a U.S. equities example, 1929-1942 and 1968-1982 were bear markets. How many of us can wait out a 13 or 14 year bear market in equities when we only work for around 35 years?
Gold’s value is determined both as a commodity (in which case, it’s subject to straightforward supply & demand analysis) and as a fiat currency-alternative (in which case, it’s an inflation hedge). As to the first factor, demand is far outstripping supply. As to the second factor, gold is rising against all major currencies (U.S. dollar, yen, euro, etc.) because of the rampant monetary growth rates found in their respective economies.
Gold is not a multi-decade, buy-and-hold investment vehicle to be used as a counterbalancing hedge relative to my other investment assets. However, it's also not a terrible investment all the time. That is, I see gold as currently experiencing a secular bull market, and as such a good investment right now and will be for several years to come. I don't pretend to have enough agility to time short term ups and downs of the price of gold. I'm more interested in timing my exit based on gold's valuation to other assets, e.g., the Dow, oil, etc.
Gold and Land are what I like and doesn't matter really to me if is going up or down, makes one feel good if is going up and if going down can buy some more, but when I say gold I mean I want the gold in my hand not on paper.
Suresh,
Curious about valuing gold vs the dow. In the last 25 years the dow is up ten fold and gold is down 40%.
Roger,
Over the past 25 years or so, U.S. equities have experienced the wildest bull market in U.S. history, while gold has been in a bear market. Looking at such a small window of time is insufficient to see variations in relative valuations between the Dow and gold. Check out the Dow/gold chart at Fred's Intelligent Bear site (http://home.earthlink.net/~intelligentbear/dj-au-ratio-lt.gif) for a longer view.
For completeness, you may also be interested in Zeal LLC's gold/oil chart at http://www.zealllc.com/2004/goldoil4.htm.
Of course, if you read of any other relative valuations for gold, please feel free to add them to my "Timing the Gold Market" thread: http://www.incometrap.com/forum/viewtopic.php?p=374#374. I figure the more such indicators that we can study, the more precise our exit strategy.
With best regards.
Post a Comment