Busier way beyond normal for the next couple of days so don't have time for a proper blog post just now but maybe we can whip up a good debate.Nouriel Roubini seems to think that there is not much point in investing in gold and Peter Schiff, along with many others, thinks gold is going much higher. While it is true that gold's only value is what people perceive it to be worth it is also true that people perceive it to have a lot of value and bid it higher in the face of certain types of shocks or in expectation of certain types of monetary events.
So gold as an investment; what say you?
The picture is unrelated to what I hope will be a good debate. Put a 50-75 gallon water tank on that bad boy and it would be very handy for some of the small wildfires we get called out on.
27 comments:
Long term I would rather hold gold than the US$.
I guess like everything else,you have to sell stuff eventually. We bought gold in 1984 and watched it lose 25-30% in value over the next 15+ years. Obviously, we've made it back in spades, the trick now is figuring out when to get off the bus. I like the comment one of your readers had the other day. When Joe the Plumber decides gold is a good long-term investment, it is time to sell.
I am not so sure that little putt-putt can deal with another 400-600 pounds of weight, especially as high on the chassis as it would likely go.
I own gold, silver, miners, and an SUV. Most of the time, I don't like my SUV; mileage is poor, it's hard to park, and it's expensive to repair. Occasionally, though, I take extended trips and it's ideal.
So it is with precious metals. Ignore the pop economists and keep a dollop of gold in your portfolio. Most of the time, you won't like it. Occasionally, like now, you'll enjoy some very nice gains.
I would add that there are reasons, pro and con, to own or not own every asset class out there. That's what makes a market.
Bill, I think 50 gallons w/b about 400 lbs, and instead of a hose reel maybe a modified cotton jacket 1.5 inch at 25 feet, a little pump on there and an inlet to get fed from a tender down below. Could have more utility then that $140,000 beer truck "we" bought.
Couldn't afford gold so,I bot poor man's gold (bags of junk silver) back in the late 70's as a spec. Sold them when the spread was bid $35 offered $50 (a sure sign of trouble).
After that, gold was a poor investment choice for 20 plus years. So, were the 70's and now 2009 outlier events? No one knows, but it seems to me that precious metals, like any investment, deserve a small position in any portfolio.
I further believe that it's not so much should you own gold as how you own it. Are GLD and SLV fully backed? As with any investment, you have to do your homework. You could be right on direction and totally wrong on where you put your dough.
philsy13
I say use the airport indicator model. When gold appears on cover of time or newsweek, it is time to take profits. Meanwhile a 5-10% allocation seems reasoable to me.
Andrew L.
Yes to gold if you are a trader and have a solid entrance and exit strategie. No to gold as a buy and hold option.
Cynthia
Bought GLD right after it was created. Heard about it at the Superbowl of Indexing in Phoenix that year. Took an insane amount of profit about 2 weeks ago and left a small chunk in in case there was a continued run up. I think there is some more upside to it, especially if trading becomes "bubble like", which I don't think has happened yet.
As to the water cart, I wonder how much utility it would have in your area. You go from fire roads to single track pretty quickly. I couldn't even see this being used in places like trail 307 on Spruce Mountain. It is a nifty idea, though.
i guess your a neighbor?? we hike 307 all the time
depending on the fire, they have ATVs that drive around delivering "piss" bags so this would simply be a little more capacity.
I don't know much about fire fighting, but our rural department has a 4WD pickup with a reel and water tank on it. It's used for grass fires, car fires, and the like. It's obviously more nimble than the big trucks.
Roger,
Used to be. Sort of. Grew up in Phx. Love the Prescott area. Did a lot of Mtn Biking up there 15 to 20 yrs ago.
One year our group did the old Senator Hwy from the 307 Trail Head to Crown King and back in one day. Beautiful ride, but darned near killed me.
very cool!
I want to be an economist when I grow up. I've just got to get one call right in my lifetime and I'll be treated with reverential awe. Then I can go on TV and use words like "unexpected" and "surprising" when I'm wrong, or trot out a formula to adjust the numbers so they support my case.
I don't mean to be disrespectful, but why would anyone invest based on the opinion of an economist? They don't make good money managers for a reason.
If money managers don't make good money managers a significant portion of the time, who are you gonna turn to?
I own a small bit of gold. I don't feel like buying any more.
Commodities, including Gold, in an easily liquidated species are appropriate for a portion of your portfolio. I like anony's term "dollop" to indicate a measure.
That said, Gold appears a bit rich now (I thought the same at $900.00-oops).
So gold as an investment; what say you?
I already commented quite extensively in the other thread, but I’ll try to add some additional thoughts I think I missed.
See the recent John Serrapere article on IndexUniverse. He has an allocation to gold (don’t recall the exact percentage) and I think he said he was going to take partial profits at $1,250.
I think you can come at gold from 3 different angles/perspectives.
Angle 1 would be including gold as part of a diversified strategic asset allocation. Looking at the last several years, and especially 2008, I think it is close to impossible to argue that gold is NOT a source of uncorrelated potentially positive returns. From that angle, it is hard to see how one can go really wrong including a 2-5% gold allocation with strict rebalancing rules if it deviates too far from that target. This is taking from the Permanent Portfolio concept here, except much smaller size.
Angle 2 would be more as a tactical trade with a larger position sizing, maybe something on the order of 10-20%. My personal allocation is 10%, and I have a separate trading account with a much higher allocation to gold options. The idea here is one would have to have clear reasons and thesis for why gold is headed much higher with clearly defined exit rules to reduce or exit the position if one is wrong. For myself, a price break below $1000 (previous resistance) and the 200 DMA would tell me I am wrong and reduce the position to a size consistent with Angle 1.
Angle 3 would be the idea that maybe, just maybe gold is in fact the next bubble/mania in its early stage. Clearly, unless you’ve been stuck on a remote island the last 10-15 years or had your head buried underground, one should have observed the very clear tendency in financial markets for bubbles/manias to form one after another after another after another on a regular basis. Tech/Internet in 99-00, housing in 04-06, China in 05-07, crude oil in 07-08. Why not gold now? It did it before in 79-80. I think the lottery philosophy applies here. You can’t win if you don’t play. I think one could EASILY justify a 1-2% allocation on NOTHING MORE then the possibility that gold might be the next bubble and then have just strict sell price targets.
I think Faber is right:
http://www.ritholtz.com/blog/2009/11/faber-gold-permanently-over-1000/
Speaking technically, and again I would highly encourage taking the time to listen to the Yamada interview (who called the start of the gold bull back in 2001), we just completed the mother of all consolidations in that giant 18 month sideways trading range from March 2008 through September 2009. Louise has an expression, “the wider the base, the higher in space”. I read people saying gold is already at the end of its bubble move and topping out here at 1100. I can only wonder what chart they are looking at. If this is the bubble top, it is unlike any bubble top I’ve ever seen. Go look at NASDAQ in 99-00, China in 06-07, oil in 07-08, or even gold in 79-80. The gold chart looks like those? We are putting in the final top 10% above an 18 month trading range and that is the bubble top? Markets can do anything, but that seems very remote to me.
I will be watching every single sentiment indicator/item I can because I am utterly convinced gauging sentiment is the key to knowing when to sell. Again, TV shows like “Flip your house” and marked the top in the housing market. Crude oil topped not long after CNBC began their daily crude oil watch “America’s crisis” and a barrel of oil was on the cover of the Economist. I see nothing like that with gold yet, although some minor things are popping up that are yellow flags that we are closer to the end then the beginning of this multi-year move. Van Eck just issued the other day an ETF GDXJ for junior miners. When all the commodity ETFs were being issued the commodity run only had another 12-24 months. I think something like GDXJ will serve a very useful purpose from a contrary perspective. Massive inflows into GDXJ should be one good sign the top is near. As a side note, I just ordered Humphrey Neill’s the Art of Contrary Thinking. I am hoping it will be helpful in better understanding sentiment as a timing tool.
Lastly, I will note the quantity and caliber of "smart money" hedge fund managers who are long gold: Einhorn, Paulson, Tudor
I own a good chunk of gold at 20-25% of assets ala Permanent Portfolio logic. I own part exchange traded paper gold to sell into the panic top at fixed re-balancing points. I also own part physical gold/silver in case people buying at the panic top are right ;->
Did anyone see this Roubini quote? "So we don't have Armageddon; we don't have inflation, so gold can maybe go slightly higher. But those people who delude themselves that gold can go to $1,500 or $2,000 are just talking nonsense."
That is a pretty bold call for a major market turn in fairly short order since $1,500 is not so awfully far away. Maybe he hasn't been to TV pundit class yet, where they teach you to obfuscate your speech more effectively. For those keeping track the 1980 top would have been $2,189 in 2009 dollars.
One key misconception is that gold is only an inflation hedge, but actually in can perform during deflation and other turbulence as well. In reality the only thing that is bad for gold is sustained long term stable monetary policy for the dollar. This means if the Fed sticks to its word to continue to erode the dollar then gold will go up, if it breaks its word then gold will go up ;->
Speaking of "sentiment" did everyone hear that Barrick is un-winding its hedge book? That could be a contrary indicator that gold is at a top ;-)
Good comments. Gold has a place but it will vary widely based upon an individual's model.
The reason I linked to the Kitco interview in my comment yesterday was because it made it clear that, from a business fundamentals POV, current gold price is nearly two and half times the cost of production for the average miner so most are locking that profit in by forward selling to establish a floor rather than the reverse.
But miners have always been about trading as well as production -- the more profitable miners being accomplished at both -- so there will always be strategic or tactical differences based upon what they perceive as adding more value to their ongoing business. In Barrick's case they are unwinding their floating contracts but these are liabilities with no actual market activity required; their fixed contracts for gold delivery remain mostly intact AFAIK.
The other part of the puzzle is gold's historical role as money, a store of value if not always a means of transaction any longer.
Along with carry trade speculation, the behavioral and financing factors powering gold's rise clearly include an abiding suspicion on the part of many that major reserve fiat currencies, the $USD in particular, can no longer be trusted to hold value.
This view does not appear to be a major factor for other significant market participants however; e.g., as the Kitco interview also mentions, many traditional gold hoarders such as India or Turkey think the current price of gold is excellent and have been selling heavily.
That's what makes markets.
My own view is that a currency panic was always a possibility, particularly if deleveraging and $USD depreciation (to facilitate that deleveraging) became disorderly, and that is pretty much what it will take to power gold significantly higher from here IMHO.
My knowledge of gold as an investment is limited and I need to re-read some of Roger's post entries and the well thought out entries from other posters here. For that I thank you guys. However I'll toss in my opinion since I seem to be in the minority but love a good debate.
I guess I look at gold not from a hedging or investment tool many of you do but as the actual metal itself. Perhaps that is my problem?
Gold does not convert labor into some tradeable good to generate revenue and profits like a company does.
Gold isnt used and destroyed in large quantities like oil or agriculture food products. These two factors remove some upward pricing help that other investment types have.
The common joe sees gold as a safe haven for when fear sets in of whats going on in the economic world or when inflation worries arise. I was (am still) amazed at how many people in the past couple years have the mentality of "wow inflation is a big concern I better go get some gold." So when their fears subside there will be a selloff as people move back into their previous investments. This causes downward price pressure then other types tend to have.
My last concern is the 20 year gap from the highs at the begining of the 80s up to 2001 when this recent bull began. 20 years is a long time to hold out to recover a loss or wait for another peak to sell at a better profit. Was that an anomoly or the standard?
I suppose my opinion is..
Yes to hop in and take profit when it rises.
No to having it as a permanent part of your portfolio.
Funny timing, Richard Russell came out today with a checklist of items for being bullish on gold. I’ll cut and paste below, but I’m going to try to keep the amount of direct text to a minimum without losing the substance:
” There are a number of items favoring higher gold now.
(1) Interest rates are at zero, which means the "opportunity cost" of owning gold now is highly favorable.
(2) The Bernanke Fed will evidently stop at nothing in its all-out attempt to "jump start" the wobbly US economy. This means spending and building debt at a never-seen-before rate. This will result in inflation. The Fed can create fiat money -- any quantity at will, but it cannot direct where that money will go.
(3) The world's central banks are now seeking to protect themselves from a falling dollar by buying gold. After years of selling gold, ironically, the central banks are now buying gold.
(4) Many nations are now seeking to boost the ratio of gold to paper in their reserves.
(5) In the US, literally no one owns gold. Rather US citizens are selling their gold (jewelry) to companies who are advertising that they'll buy "your overpriced" gold for cash.
(6) A few nations are actively promoting the ownership of gold. China, the world's biggest miner of gold, has been encouraging its people to buy gold. In London, Harrod's department store is now selling gold coins and bars to anyone who has the paper to buy gold. Within a year or so, I expect public buying of gold to reach a crescendo. Interestingly, most Americans have never seen a gold coin.”
Ultimately, I’ve got to trust my own analysis and opinion, but in the battle of the gurus, I’m going to go with Russell and Yamada who have decades of experience, and have been right on this trade since 2001/2002. My instincts tell me when it actually is topping out one or both will get that side of the trade right.
"I guess I look at gold not from a hedging or investment tool many of you do but as the actual metal itself."
I think this is a good way to analyze gold. Gold is just a durable and easily recognized metal that has a fairly constant small supply per capita. It is also important that gold has a history of monetary use.
Gold's value is set by supply and demand just like all commodities. Gold's uses include jewelry, industrial/medical applications, and 2nd most trusted reserve currency. A very small amount of gold is used up each year, but the world's store of gold increases by more than that amount each year due to mining. So supply is increasing slightly over time. On the demand side all uses see increased demand as the world population increases.
World population is increasing at about 1.2% per year according to wikipedia and has grown as fast as 2.2%. Gold increases due to mining at around 1-2% per year according to Mises.
So yes gold has a real return of approximately nothing as long as supply and demand maintain the same relationship. The discussion today is if demand for gold as money is going to increase faster than the supply side can keep up with. That is what leads to dramatically higher prices.
The last time gold ran higher in the 70s was when the U.S. went off the gold standard and were printing money like mad (that is an economic term).
As long as the Fed and other central bankers are printing at the current pace, gold will do well.
Also, as mentioned many central banks are buying gold. China only has 1-2% of reserves in gold, and the same can be said for India. If they get back to a historical norm of 10-11%, then there is a case that gold could go substantially higher.
Once rates begin rising and the Fed tries to strengthen the dollar, gold will suffer.
In my opinion inflation will become a problem late 2010, as the Renmimbi strengthens against other major currencies and the economies of Europe and the US see some real, privately-led growth and reducing unemployment. These two factors (plus who knows what?) will bring on an unstoppable tide of generally rising prices for everyone.
Gold will have already started to become mainstream at this point, with the usual tales of small exploration companies' valuations making investors huge profits and 'supply shortages' - bubble territory.
Willem Buiter gets the fiat word in [lol]: Gold - a six thousand year-old bubble @ http://tinyurl.com/yf9kotz (ht TBP)
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