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Who's Buying Gold

Discussion in 'Speaker's Corner' started by fester, Feb 4, 2009.

  1. El Pew

    Wise Guy

    Joined: Sep 1, 2009

    Posts: 1,054

    This is true but there are ways to invest in gold without actually buying the bullion itself, for example you can buy into funds which themselves own gold mining companies, jewellers, Cash4Gold etc. and thus get a layer of insulation from that risk.

    All I can say is fair play to the people who have made money on gold so far, but I have to say that currently gold is a terrible investment. As a contrarian invester it's way too expensive for me, and is likely to see a downward trend as economies recover. There are cheaper assets which are more likely to trend upwards over the next few years.

    There's also the fact that unlike many other investments you cannot derive an income for gold, in fact some people refuse to refer to it as an investment, rather a 'hedge'. A true investment, like a stock or a bond, delivers a stream of income which is where most of the value comes from. Gold is a bit weird in that regard.

    e: also as a final note, when you see a thread on a forum devoted to computers about how great an investment gold is, that really, really screams 'BUBBLE!!!' The trick at this point is not to be the greater fool.
     
    Last edited: May 17, 2011
  2. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    As you say your a contrarian investor what would you do do to preserve the purchasing power of your hard earned savings with as little risk as possible ?

    I have been a bit of a gold bug from around 2005 after learning a little of the Austrian school economic theory and have seen no change from the low interest inflationary policies from the major western central banks that started this mess.Which is why I'm still bullish on gold (as a stable hard currency not an investment) and commodities due to massive inflation of the money supplies (Bailouts,QE1, QE2, QE???).

    As for this being a computer forum this is the "speakers corner" where economic debate is quite common although the debate usually boils down to Labour good Tory bad or vice versa . After two years the general consensus here still seams the same, still no buyers.
     
    Last edited: May 17, 2011
  3. El Pew

    Wise Guy

    Joined: Sep 1, 2009

    Posts: 1,054

    It's not about risk, risk is something you have to accept if you want to get a return.

    My approach is to have a broad, diversified portfolio, in well defined proportions - e.g. 60% stocks (broken down into UK large cap, UK small value, emerging markets, Europe, and others) and 40% bonds (corporate and government). If you re-balance your allocation each year it forces you to be contrarian, i.e. buy low and sell high. For example if stocks have a good year and my portfolio ends up with a 65/35 split, I'd sell the difference to bring it back to 60/40 and maintain the ratio. Chances are the next year stocks will not do so well but bonds will be up, so I may end up with 55/45, and repeat the process.

    Studies show you can earn something like 0.5-1.5% more over time just by doing this, the problem is that it is psychologically difficult - nobody likes selling when things are going well or buying poorly performing assets.

    You can add other asset classes into the mix, for example property, cash or commodities, depending on personal preferences. I think owning a home is enough of an investment in property, a reasonable cash emergency fund covers you there, and the entire commodities market is the Wild West at the moment so probably safer to stear clear for now.

    The most important thing is to identify your risk profile, stick to your strategy, and keep your costs down. Then you'll get returns around the market average, and that ain't no bad thing.

    My point about gold being mentioned in this board is that the final stage of any bubble is when purely amateur investors start speculating in something because it's a 'sure thing' when actually it isn't, what's actually happening is that the pros are looking for a way out and enticing in people who don't know better - see the housing market bubble.

    e: a good book on this subject is 'The 4 Pillars of Investing' by William Bernstein. It's a brilliant guide for long-term personal investing.
     
    Last edited: May 18, 2011
  4. Hatter The Mad

    Sgarrista

    Joined: Nov 28, 2008

    Posts: 8,737

    Location: UK

    I bought gold when Gordon Brown sold it :cool:
     
  5. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    sorry double post
     
    Last edited: May 18, 2011
  6. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    Nice one :D I'll give you double that price for it now ;)
     
    Last edited: May 18, 2011
  7. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    Seams a very orthodox strategy from an orthodox economic view of the markets and the economy.I have lot Austrian Economic bias my veiw is that both bonds and non commodity stocks are overly risky due to reckless world economic policies.

    What has been the return on "Save bonds" over the last few years also the ftse and the dow still have not recovered even with the massive injections of QE liquidity/credit/inflation and are even more distorted and volatile being propped up by government guarantees of unlimited credit.

    Talking of bubbles the cause of economic bubbles is loose easy money credit distorting the market.Examples of this are tech bubble want a $100mil to start a web site no problem.Housing bubble ninja loans and 120% first time buyer mortgages for 10x your income no problem.

    There is still no loose credit distorting the Pm's market from Joe Public and the margin requirement have been constantly raised for the big boys.Just try to get a loan to buy some gold or silver you cant even buy it from a bullion dealer with a credit card.:D
     
    Last edited: May 18, 2011
  8. El Pew

    Wise Guy

    Joined: Sep 1, 2009

    Posts: 1,054

    It may be orthodox but it works. By putting all your trust in gold you are basically betting that it will outperform everything else, which I think is unlikely. You should know, by the way, that Austrian economics is largely a joke and isn't taken seriously by anyone in the economics field. It does not have a good track record of properly explaining its theories, unlike other branches.

    In terms of everything else (stocks, bonds, whatever) doing badly - that's fine by me. I'm investing for the long term and I'm still young, a bear market is the best thing that could happen to me. I can buy up assets at knock-down prices then hold them for 20-40 years to take advantage of the inevitable recovery. And if there is no recovery, then that means the world has probably gone to hell so I won't give a damn about investments, I'll have much bigger problems.
     
  9. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    First I don't consider gold an investment It's simply currency which is keeping pace with true inflation of fiat paper.

    Obviously I like yourself I have been buying more capital assets and other commodity's as they show them selves these I consider real investments.

    When you say "Austrian economics is largely a joke and isn't taken seriously by anyone in the economics field" would that be by the same people who lead the world into this mess, that was predicted by the Austrian business cycle theory.

    The economy could get a lot worse maybe even hellish before it stabilises, this is when wise investment will do the most good in creating growth.Not giving a damn does not help any one including yourself.
     
    Last edited: May 20, 2011
  10. El Pew

    Wise Guy

    Joined: Sep 1, 2009

    Posts: 1,054

    The Austrian School eschews such things as 'facts', 'data' and 'evidence' in favour of self-evident empirical axioms, aka making it up as you go along. It's a joke, the fact that it managed to 'predict' the crisis (and most disagree that it did) is merely evidence that a stopped clock is correct twice a day.

    I don't care if there's an extended bear market precisely becuase that is the best thing that can happen to me as a young investor. It gives me a period of time to buy up lots of assets at relatively cheap prices, then when things start to recover I will see larger gains. Trying to maintain growth by chasing performance has never been shown to beat a more passive approach over anything approaching the long term (ie 10-20 years or more) especially for an amateur such as myself (and presumably you too). So thanks for the concern but I am very comfortable with my strategy.
     
  11. amigafan2003

    Capodecina

    Joined: Jan 18, 2008

    Posts: 15,880

    Location: Fylde Coast, Lancashire

    My Masonic lodge sold all it's gold investments two weeks ago (and donated 10% to the RNLI) - that's all I need to know about the direction the price of Gold is heading.
     
  12. LeJosh

    Capodecina

    Joined: Sep 24, 2008

    Posts: 10,434

    Location: Edinburgh.

    It's the highest it's been in 30 years.

    Spot gold is 920GBP/oz.

    Whoever would buy at that price is mad I can't see it going 1k or above.
     
  13. El Pew

    Wise Guy

    Joined: Sep 1, 2009

    Posts: 1,054

    It might go up a bit more, but the best gains are made in the 'fat' part of the upswing, not from trying to gauge the top and bottom, so I think anyone taking profits these days is probably doing the right thing.
     
  14. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    I guess by that logic the following also at near 30 year highs are also in a bubble and can't sustain an increase in paper value.

    Wheat,rice,corn,coffee,tea,sugar,soya,cocoa,veg oil
    Phosphates,nitrates,potash
    Oil,gas,coal,uranium
    Iron,copper,zinc,nickel,aluminium,rare earth's
    Timber, portland cement,glass

    I guess then that only things that are not in a bubble at the minute are $ £ euro notes,paper promises, wages, property and consumer trinkets.
     
    Last edited: May 20, 2011
  15. LeJosh

    Capodecina

    Joined: Sep 24, 2008

    Posts: 10,434

    Location: Edinburgh.

    I didn't say gold was in a bubble. :confused:

    Also why are you mentioning other commodities? They don't maintain their value as well as gold does. 2008 rocked the world but everything came back down to "acceptable" levels except gold.

    Maybe if I found gold in a river I'd be happy but to buy, I'm not so sure.
     
  16. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    The reason I brought up the other commodities was to show that gold (as a currency) has simply maintained it's purchasing power though a very volatile period of inflationary fiat money printing which is not coming to an end any time soon. Look at some chart's most commodity's are back up to "unacceptable" fiat price levels.



    http://www.guardian.co.uk/business/2011/apr/21/commodities-coffee-shortage-price-rise-expected
    http://www.telegraph.co.uk/finance/...342/Chocolate-price-fears-as-cocoa-jumps.html
    http://www.kitcometals.com/charts/gfms_historical_large.html#5years
    http://www.agrimoney.com/news/corn-prices-to-set-record-in-2011---by-a-margin--2650.html
     
    Last edited: May 21, 2011
  17. El Pew

    Wise Guy

    Joined: Sep 1, 2009

    Posts: 1,054

    There's a very compelling case that all of the above are in a speculative bubble. In the early 90s many investment banks were allowed in to the commodity market after previously being excluded from it thanks to rules set up during the Great Depression. The banks successfully got exemptions from those rules and started funds to invest in commodities.

    This meant that the traditional balance of producers and consumer on the one side versus a few speculators on the other (who were there to provide liquidity to the market) was skewed wildly in favour of the speculators, who were all placing long bets. Thus the prices rose on all commodities, more or less at the same time.

    Commodities are very likely the next bubble, after tech stocks and mortgage bonds. How else do you explain all of them raising in step with each other?

    e: Read this, it explains things better than I can: http://blogs.forbes.com/greatspeculations/2011/04/25/commodity-bubble-redux-in-full-effect/
     
    Last edited: May 21, 2011
  18. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    It is the very fact that they are raising in unison that show that's not commodity's,gold and the Swiss franc that are rising but the Pound, Dollar and the Euro falling due to excess debt money creation diluting value .

    From the Forbs article
    It appears that the Western economic systems have become ever more volatile over the past decade. That is, bubbles, followed by severe contractions, are appearing more often and with increased severity. This is in stark contrast to the dampening of the business cycle we observed, and celebrated, in the 1980s and 1990s. So, what changed?

    The answer in short historic low interest rate money creation for an elite speculator class backed buy government bailout's of more money creation if any thing goes wrong because they are to big to fail.Short term speculation effect short term price yes I agree.

    The the inflation of the money supple effect's the long term price of everything beyond the initial of period speculation.

    What stopped this speculative inflation in the 80's was the high interest polices of Paul Volcker.
     
    Last edited: May 21, 2011
  19. El Pew

    Wise Guy

    Joined: Sep 1, 2009

    Posts: 1,054

    Okay you keep telling yourself that. The commodities bubble has far outstripped any possible price rises due to inflation, in fact it started before the major economies started their QE programs.

    I really don't think you have a firm grasp of the situation.

    ^^^ seems like Mr. Soros agrees too.
     
  20. fester

    Gangster

    Joined: Nov 3, 2005

    Posts: 442

    Location: belfast

    d p
     
    Last edited: May 21, 2011