allyjcambo

"....The low rates are ruining the future of the pound, and the UK economy. They cannot be sustained forever......" This is a point with which I'm struggling at the moment. Firstly, if all currencies currently have low rates and are likely to continue to do so indefinitely, how do UK low rates ruin the future of the pound and the UK economy? Secondly, as long as deflationary forces are at work (e.g. over-capacity, lack of demand, high unemployment) interest rates can presumably stay at the low levels, no? I think these forces are going to stick around for quite some time. Thirdly, there is often talk about the bond market rather than the BoE pushing up rates. But equally there are guys like Hugh Hendry who refer to this fear as the 'bogey man'. He thinks there will be plenty of demand for the bonds - we have an immediate precedent in Japan. In other words, will the UK not be able to hold its rates at these low levels for the next 2-3 years without risk to the pound? And will this not support house prices?

Yep, it is frustrating but one just needs to be patient. Flats like that may nudge up another couple of thousand or so but the risk is overwhelmingly to the downside. I mean where are the jobs and lending going to come from to support today's versus the '05 price? Like many on here I'm expecting another big leg down in stocks, commodities etc later this year and expect UK property to be part of that too. I think the market (especially in places like Edinburgh) needs another kick in the balls before people start to wake up and realise that property (no matter where) is not a one way bet.

Spot on, RH (and a nice reworking of Hamlet!). I think James Turk has an important point to make but his analysis is one dimensional and ignores a whole host of other factors. I'll be interested to see what Schiff and Turk say if the USD rallies this Autumn.

Thanks for sharing your views. I know the Edinburgh market quite well and recognise the sentiments you mention: in particular, the idea of home ownership being something sensible remains embedded in most people. Ultimately it depends I guess on one's view of the economy. Most people still think things will return to 'normal' within the next few years and so remain convinced that property is great investment. I think almost all on GEI (irrespective of whether you're in the deflation/inflation camp) don't believe in a quick turnaround.

I'm lost for words. Just finished watching Newsnight. It seems the banking white paper is a toothless tiger and will basically change nothing. There was also a feature on pensions and a discussion on the financial illiteracy of those in their teens and 20's. The pensions minister (or whoever she was) was going on about how we need to develop programmes to educate people on their financial options: she then gave the following example "for instance, people should understand that if they save in an ISA their money will be safe and will not be lost"!! WTF. I dispair at these banking and political f&ckwits. Am off to watch The Wire.

I'm in a similar position (i.e. a bit of cash coming my way). I plan to pound cost average into BlackRock Gold and General and the Ruffer Baker Steel Fund with some of this and to also continue to accumulate physical. Am trying to ignore the short term moves although it's not easy particularly when the GBP continues to rally. I place a fair amount of faith in Bob Hoye's outlook and therefore try and position myself to match his outlook. At the end of the day, whether we have deflation, inflation or a bit of both, I don't think you can go too wrong with a decent chunk of your wealth in gold and gold miners.

Thanks for your thoughts Chris and FWIW. I've been very impressed with much of Bob Hoye's analysis (as you probably know, he sees gold stocks performing much like the dot-coms of the mid/late 90's). His view is that gold stocks will generally move with the stock market but overall will be net up. I think pound cost averaging is a decent way of playing this trend.

I put some money this time last year into the Ruffer Baker Steel Gold fund (my way of getting exposure to non-large cap gold mining shares). Like almost everything else, the fund suffered in Autumn 2008. However I see from my most recent statement that the losses have been made up such that I am back now at 'level par'. Just a thought, but I am wondering if I should sell out now and then drip the proceeds back into the fund over the next 12 months. I think this gives me a better chance of benefiting from any dips in price which I am expecting later this year. Anyone got any thoughts on this?

Yep, I read recently (can't remember where) that the GBP has done well of late as a result of the rally in risk. I think most on this site see that rally as temporary in which case we could see gold fall back into the USD 800s but at the same time see little depreciation in terms of Gold vs GBP. - i.e. what gold loses against the dollar it will gain against the pound.

You keep saying that. What's your basis?

He means ‘sceptical’ but I’m sure you knew that already! I have some sympathy for Phil. I know I know, he was part of the ramping circus but I do think he’s a decent guy as evidenced by the fact he was paying his staff out of his own pocket.

Apologies to Goldfinger et al in advance, but yes, I have sold some this morning. Mine is a blunt instrument approach: I don’t have any targets but merely sell some when a new high is hit and buy back when the price falls back. However, I never trade the core, just the froth.

Gold continuing to make all time highs in GBP.

Good for you Wanderer – I was thinking of doing something similar today but haven’t got round to it. I did manage to buy last week when it was around £550-£560 and that was with cash I took when it hit its previous high just before Xmas. No skill mind you, I just sell off a bit when it makes new highs and then reinvest when it drops back a bit. Of course you can never be 100% on anything in relation to investing but I find it very hard to build any kind of case in favour of GBP over Gold. Funnily enough my ratio of ETF to BV holdings are not massively dissimilar to yours and I am always looking for opportunities to whittle down my exposure in relation to the former.

Peter Schiff highlighting some obvious parallels between the Madoff scheme and the US economy.... As the multi-billion dollar Ponzi scheme orchestrated by Wall Street insider Bernard Madoff unravels in the media spotlight, the nation is being presented with a rare opportunity to understand the true nature of many of our most cherished financial structures. Hopefully we have the wisdom to connect the dots. Although the $50 billion loss engineered by Madoff is truly a staggering accomplishment (and was done using old-fashioned fraud rather than the mathematical wizardry that has characterized Wall Street’s recent larcenies) the size of the scheme pales in comparison to the multi-trillion dollar Ponzi structures run by the United States government. In fact, rather than looking to jail Madoff, President-elect Obama should consider making him our new Treasury secretary. If not that, at least make him the czar of something! Madoff’s inspiration came from Charles Ponzi, the Italian-born American immigrant who promoted an investment plan in the early 1900s’ that traded postal coupons. Rather than paying investors from legitimate investment returns, Ponzi hit upon the innovative idea of paying out early investors with money collected from new investors. By creating an illusion of success, interest in his investment plan ballooned. Over time the schemes have become known by many other names, such as chain letters or pyramid schemes. They are united by the fact that they always fail in the end. When the influx of new investors inevitably slows to the point where distributions to current investors can no longer be maintained, investors look to withdraw funds. When this happens, the entire structure falls apart. The profits received by those who “invested” early as well so any funds skimmed off by the promoter, are offset by all the losses of those who came late to the party. To a large extent, the same concept has driven the major asset bubbles of the last decade. Given the ridiculously high valuations that were assigned to tech stocks and real estate during their respective booms, the only way the bubbles could be perpetuated was if newer “investors” could be found to pay even more outrageous prices (the greater fool). But when these new buyers balked, the whole structure crumbled. Although there was no Ponzi or Madoff to orchestrate these manias, the entire financial and economic apparatus of the country had successfully convinced the public that “investments” in tech stocks and condominiums were bullet proof and that the supply of new buyers was endless. Unfortunately, the Ponzi economy doesn’t stop there. A chain letter is no more viable when run by governments than when run by private citizens. However, government orchestrated pyramids have the advantage of required participation. As a result, they can maintain the illusion of viability for several generations. But the longer such schemes operate the larger will be the losses when they ultimately collapse. The Social Security Administration runs its “trust funds” with precisely the same methods used by Madoff and Ponzi. As money is collected by from current workers, the funds are then dispersed to those already receiving benefits. None of the funds collected are actually invested, so no investment returns are ever generated. Those currently paying into the system are expected to receive their returns based on the “contribution” made by future workers. This is the classic definition of a Ponzi scheme. The only difference is that Ponzi didn’t own a printing press. The United States Government runs its own balance sheet based on the Ponzi principal as well. Our national debt always grows and never shrinks. As existing debt matures, proceeds are repaid by issuing new debt. Interest payments on existing debt are also made by selling new debt to investors. The whole scheme depends on an ever growing supply of new lenders, or the willingness of existing lenders, to continue to roll over maturing notes. Of course, as was the case with Madoff, if enough of our creditors want their money back, the music stops playing. In Madoff’s case, the rug pulling was provided by the huge financial losses suffered by some of his clients in other non-Madoff investments. When enough of these clients looked to sell some of their apparently well-performing Madoff assets to help offset such losses, the scam collapsed. The same thing could befall the United States Government. Now that China and our other creditors are looking to spend some of their U.S. Treasury holdings to stimulate their own economies, look for a similar outcome with even more dire implications. The main difference is that while Madoff took elaborate steps to conceal his scheme, the U.S. government operates in broad daylight. It truly is amazing how faith in government is so pervasive that many can believe that politicians will succeed where private individuals fail, and that governments are somehow immune to the economic laws that govern the rest of society. Like those unfortunate to have been duped by Madoff and Ponzi, the world is in for a rude awakening.

RH, like you I used to think of gold in USDs only. It’s only within the last 6 months or so that I have started to view it more in terms of GBP. The most relevant price for each person is likely to be the currency in which they most regularly deal (hence why I look at the GBP price). But Bob Hoye in the recent CWR didn’t seem interested at all when Frizzers questioned him about Gold vs. other currencies. Instead he was more interested in the “real price” by which I think he meant gold vs. a basket of commodities.

CGT in the UK is 18%, I think.

This isn’t it, surely. Is it? My instinct tells me there remain plenty more battles ahead with regards to the war between the forces of good (PMs) and of bad (paper). That said, gold and silver’s very recent ascent is hugely impressive.

Agreed. That was a fantastic post CDSwamp. Very candid.

I can and I will. Do you mind if I pass it off as my own! Just kidding, it must have taken an age to produce.

P.S. Re point 3, this is the chart I am going to use. http://gold.approximity.com/Gold_GBP_nominal_real.PNG

Thank you COM, RH, Steve and Wren. I'll use a combination of your suggestions (although not the £20 on fire one, GOM (at least not literally)!) and let you know how I get on. The other one I used with him a few months' ago was asking the rhetorical (to me anyway) question "if you have the choice of burying £1,000 of cash or £1,000 of gold which you could only retrieve in 5 years time- what would you chose?". I thought that was quite a good way of illustrating my point and to be fair he didn't disagree. Any yet, no change!

GF, if you had to persuade someone of the merits of PMs over GBP in under 100 words how would you do it? As I mentioned above, I have tried to use the analogy of the pound being like a company whose dividends and share price are falling but unfortunately that has failed to persuade my father. Anyone else got any succinct analogies?

Hadn't thought about that before. Thanks for the idea.

Agreed. Possibly a wrong decision, but I just cashed in a small piece of my gold profit with a view to buying back when its price in GBP falls. Nothing after all goes up in a straight line (even gold vs. the pound). With the run we’ve had I figure sterling is due a small rally against gold soon. Hopefully, I’ll be able to buy back in at a lower level.