romans holiday

I agree with everything you say. To me, gold is just another asset class, and if you can spot its periodic time in the sun, you can profit greatly.

 

But all the arguments seem to revolve around "gold is real money" and make no reference to the problems specific to any one time, but argue against cash under any circumstances. Some are so attached to this reasoning they will surely ignore the inevitable blow off top that eventually forms, and be buying that "bargain priced" gold all the way down again. This is what I an many others find objectionable about some goldbugs arguments, particularly when accompanied with arrogance and hubris. In general, when you start to see arrogance and hubris, the end is near, in most peoples' experience. Rearrange "pride fall before comes" for the folk wisdom version of what I am trying to say.

Yep, good point. There are no certainties in life.... only educated guesses. I guess the reason why many gold bugs are so enthusiastic about gold these days, is that they are at the same time very concerned with the crisis of the banking system, which is unfolding almost daily. The inept and inflationary policies that are being employed are even more worrisome. At times like these, gold certainly starts to shine brightly.

I have found the following site both balanced and helpful when discussing long term markets:

http://financialsense.com/

And in the 1990s??????

 

Index linked cash investments held up ok, whereas gold just drifted downwards - in nominal, let alone real terms. Where would this have left a pensioner? Should they risk a repeat of this?

Trends, cycles and secular markets are always changing. There are no absolutes in the world of investing. In my opinion, the successful investor [not the speculator] manages to identify which markets are waxing and which are waning. Many think that while the long bull run in the financial markets is well and truly in decline, a secular bull market in the commodities is still in its early stages. The success of many investors has consisted in identifying these markets. If we are indeed in a long term commodity bull market, and if gold is the king of commodities, then gold is likely to do well in the coming years.

Different times call for different measures.

Look at a chart of gold for say the past ten years, compare to similiar charts of the dollar or stirling. Which currency would you rather have??

That argument is at best debatable of course, what is the value of that "money" measured against? Other currencies? ie. If your held currency had devalued by 50% against all other currencies then you wouldn't have doubled your money; the whole problem with the floating exhange system.

Completely agree. But I think the article is here first presenting the case for fiat from the perspective of fiat believers before preceding to rip it apart.

Very true.

 

But gold is no good to a pensioner - it doesn't generate an income. In fact, it generally costs money to store. All a pensioner could do with gold is to slowly sell it in order to eat etc., with no chance at all of ever being able to top up again.

http://www.moneyweek.com/file/16672/why-it...y-gold-now.html

Gold pays no interest. It’s just a lump of yellow metal. If the bank is paying you 7% interest on your cash, chances are you’d rather have your money in the bank. It makes sense in this case, thanks to compound interest—in 10 years you’d have doubled your money. Hold gold for 10 years and you still have the same lump of yellow metal.

Now consider this... Imagine the bank was paying zero percent interest... then which is more attractive, paper dollars or gold? In this case, a rational investor would choose gold.

Gold is beautiful, rare, and easy to exchange, no matter where you are in the world. Paper money, on the other hand, is just paper. Governments can print as much of it as they like.

Governments can print money to pay off their debts. But they can’t create gold. The supply of paper money can be infinite. But the supply of gold is extremely limited (they say that the entire gold production in the history of the world could fit on the basketball court at Madison Square Garden). And it’s difficult to extract. Bill Gates could buy all the gold mined in the world in a year from his checkbook.

As a rule, money flows where it’s treated best. If interest rates are high, then gold performs poorly relative to money. If interest rates are low, money flows toward gold.When interest rates are zero, gold becomes a no-brainer.

But wait,” you say. “Interest rates soared in the 70s… how did gold manage to run from $100 to $800 during that time?” Yes, interest rates soared in the 70s… but let’s look at the “real deal” you get for your money. Let’s consider the effects of inflation…

The “nominal” interest rates you might see advertised at your bank or in the newspaper don’t give the full picture. Here’s why: if the prices of the items you buy on a regular basis, like food, gas and accommodations, are rising at 5% and - at the same time - the bank is paying you 5% interest on your savings, the bank is not compensating you for holding your wealth in cash instead of gold.

In this case, economists would say your “real” interest rate—the interest rate AFTER inflation—is actually zero. Back in 1979, short-term interest rates were 8%, but inflation was 13%, so “real” interest rates were negative 5% a year.

Is it any wonder the people rushed into gold and away from paper money?

By 1981, Fed Chairman Paul Volker had driven short-term interest rates to 15% and inflation to 6%, so the real interest rate was almost 10%.

By 1982, gold was back below $400.

Buy gold: why you should shift your money from cash

Today, we see nominal interest rates advertised at around 5%. At the same time, inflation is around 5%… and Federal Reserve chairman Ben Bernanke says he’s almost done raising interest rates... Real interest rates are close to negative… and the smart money is shifting from cash and into gold.

You should own some gold, even if it is purely to lower some of the risk in your investment portfolio, as gold and stocks often move in opposite directions. If you’re not there right now, it’s time make the move.

Good investing,

Some countries pay interest on gold held in banks. If I remember correctly, Viet Nam does [could have been a different country, but was Asian]

[The Asian countries have a much better understanding of the monetary function of PM.... no doubt we will catch up ]

time for a new poll me thinks.. I for one am not 100% PM although +ve fiat cash. I would be interseted in peoples % blend, cash vs gold vs silver vs mining shares vs other shares vs gilts/NSI

I am in metals 100% at the moment. I like to think I could stop buying and start putting together another cash deposit. Trouble is, I continue to lose faith in not only fiat but also in the banks.

My solution is to follow my own instincts and keep buying metal until I am priced out of the market . Then I will be stuck with the stuff [fiat].

Anyone who has STR'd

What!! And haven't swapped it for metal yet!?

It amazed me that some who were smart enough to STR did not see the further logic of selling fiat.

Very true.

 

But gold is no good to a pensioner - it doesn't generate an income. In fact, it generally costs money to store. All a pensioner could do with gold is to slowly sell it in order to eat etc., with no chance at all of ever being able to top up again.

Gold will be redeemed in the eyes of our traumatized and panicked pensioner as a store of wealth.... which would only be eroded if left in fiat. As for money generating income.... perhaps that belongs to the past.... or to the future once the financial markets pick up again.

But who today actually has any fiat? People have debt and houses, not cash! Inflation is generally pretty friendly to both.

Even though people may not actually have much paper fiat, fiat is more than cash.... it is faith in the monetary system. This is why people felt so secure when their house prices were going up... and why they are positively traumatized when they continue to decline.

Also, I would not bank on inflation eating up debt. I think this breed of inflation is different... I heard it referred to as commodity inflation the other day, which I thought an interesting term.

And then you are something of a "heretic".... because you have not bought into what everyone believes in.

Argyrophiles? From biology, argyrophilic cells bind silver salts.

 

A general fear of silver in all its forms is argyrophobia according to a quick google...

Feel an attack of linguaphobia coming on.

So, is there any doubt in anyone's mind that gold and silver will spend the next few years growing at a rate of no less than, say, 15% a year?

 

Just askin'...

Only 15% a year. Seems a no brainer to me. I expect to see 15% a month once we get through the summer doldrums. But then maybe I am just a chrysophile.

Good segment with Peter Schiff on CBS. Good to see this kind of discussion about the US economy on mainstream media.

http://www.europac.net/Schiff-CBS-7-20-08_lg.asp

Yep, there are no certainties in life.... just educated guesses.

Agreed. I also think we will see a rennaisance in the monetary function of gold and that it will become our new fixed point in referencing value. Conversations such as these surely show our need for it.

Sorry for my stupidity, but I'm not sure I understand this. Do you mean...

- 'deflationary period': cost of living lower in pounds sterling, &

- 'falling POG': price of gold lower in pounds sterling, &

- 'stable value of POG': value stable/increase relative to cost of living?? (but falling in pounds sterling)

 

If so, surely its even better to have ones wealth in pounds sterling (or assets that are not decreasing in monetary value, e.g., Swiss property) at that stage?

 

 

The two of them have got 1kg each now, and that will not be sold until they're adults and can decide for themselves. Hope to make that 5kg each by the time they're 18. And all being well, they'll also inherit £1M of rental properties and a large family home. ...unless I screw up with the above plan, and/or go insane and blow it all in my final years

Sorry for my lack of clarity. I guess what I was meaning to say is that if there was first a period of chronic or hyper inflation followed on by a period of deflation it would mean something quite different for our pounds or dollars than if we faced either hyperinflation or deflation.

If deflation followed on from hyperinflation, remember those pounds will have been debased. We could then face something of a double whammy; we would have less of a debased currency. Given this scenario it is difficult to say that POG would be lower in pounds. Could be a lot higher in pounds.... but those pounds could be worth a lot less than 2008 pounds. [Remember, with globalization, products will gravitate to the strongest currencies, so the purchasing power of debased currencies will likely remain weak]

As for the value of POG. That would be an oxymoron. It does not make sense to ask the value of a price. You would first have to ask the value of what you priced something in. The real value of gold will reside in what people are prepared to pay for it, in money or in real assets, and I would imagine the value will increase [the price in stirling would be irrelevant].

I think a copernican revolution in thought is required when we start to entertain the idea of a debased currency. Our currency is on a slippery slope and is no longer a fixed point.

http://en.wikipedia.org/wiki/Copernicus

Hope that clarified things a little.

Interesting question ...and perhaps its appearance on this bb is a sign that a top is in sight (even though quite a way off still)?

 

To answer this question, I think it's important to work out WHY you're putting your money into gold (or whatever). It's presumably either to try to get rich, or to avoid getting poor (since currencies are all becoming worth less), or you are 'investing' the money for some future plan (e.g., buying a house, a pension). But in all cases, you need an exit strategy, and you need to stick to it !

 

In my case I want...

a. to try to get out of cash and into assets as much as possible, so that currency devaluation is circumvented

b. to specifically use my money and investments to buy primarily a nice family house, and also some rental property

 

Given the above, and from my understanding of global economics, my CURRENT prediction and plan is....

- to have 1/3 of all my available funds in PMs, and have achieved this since late 2006 [already enough profit for small family house]

- other 2/3 is secure in cash/bonds and being used to buy rental propertys in Switzerland (..can explain why if you're interested)

- will put big chunks of that 2/3 into oil if price drops to 100, or BRIC stock market when its cheap (later next year?)

- feeling certain gold will reach 1200-1500 in next year, I'm possibly/probably going to sell then, as I will then have enough to buy the desired house and want to lock that in (though will delay purchase a year or two more until UK house prices are bottoming and people are desperate and will do a great deal for cash)

- may delay the gold selling a little if the pound hasn't yet collapsed as it surely will in next 12-24 months

- feeling uncertain gold will go to 2000 or above (it really should, but the PPT may not let it) I am expecting to sell ALL rather than just most of my gold

-from 2010 onwards I'm expecting deflationary recession, and gold price falling, so I don't want to be caught holding when that happens

- will eventually buy some more gold when price again gets cheap, as a long term investment for the kids

...but the world is full of surprises, and so all the above can change

I can also envisage a deflationary period in the near future.... yet do not think it will be adverse to the value of POG. I imagine that if fiat has not only been debased but also become scarce, gold will be the best currency to have. Why not just hang onto a little for your kids.

Thought about it over dinner.... the "when to stop buying" question.

I think I will stop buying gold when I can not buy gold. If there is no increase in wages while the cost of living continues to increase, I imagine it will be that much more difficult to save [all my savings are in gold; markets are not completely rational, neither am I ]. Add to this continued currency debasement and the continued rise in POG and it will not be long before I will be "priced out" of the gold market [just as I had been priced out of the housing market before]. Of course, if this scenario unfolds it is fine as I would have bought into gold at the right time.

So it dissolves my conundrum; I will stop buying gold when I no longer can.

The PPT remain my best friends.

Wow... Richard Duncan talking about the "Dollar Crisis" on CNBC now.

Hey, thanks for the analysis Bobsta

 

 

 

I suppose what I was driving at was this would be the limit at which I would definitely stop buying, as per the OP's original question To continue buying after this point would be to lose money. At any point up until the ratio goes to zero, I would be in the money as it were. I agree at the point the ratio goes to 1 then the value of the gold equals what I paid for it (obviously )

 

 

 

Good advice, thank you

But if the currency continues to be debased would you not continue to buy?

Which is the point I believe Wren is also making.

It takes a Copernican effort, but I am starting to see the economy revolving around the currency of gold these days.

Well I suppose, in terms of a hedge against currency devaluation I won't have lost anything I suppose I'm thinking of holding gold as insurance... but only while gold is being "well behaved", i.e. rising moderately... if it goes through the roof then I will change my plan accordingly

Yes, currency debasement is the wild card in all calculations of this kind. Then you would be left asking yourself, "Do I really want to swap gold for dollars/pounds?", without needing to bother about the amount of those dollars/pounds. Which is in effect to say gold is the best currency to hold.

And this is why many bought gold in the first place. What got us in, may be what keeps us in. I imagine I will only swap gold for property or a boat.... something with real value.

Opps ... went off topic there as we were talking about when to stop buying not when to start selling.

You guys... this makes painful reading.. am waiting for goldmoney funds to clear! Any of you had experience as to how long this takes from the UK? (transfer initiatiated via internet banking)

 

p.s. I was not happy to see that RBS Int (Goldmoney GBP account) isn't one of the new APACS faster clearing (2hrs) accounts

http://www.apacs.org.uk/sortcodechecker/index.html

Not sure about goldmoney.... but would hazard a guess that gold will dip again to 960.

I like to think of the "cheap" gold I bought in the past as subsidisng the more expensive stuff now, so my plan is to keep buying until the ratio of the total amount money I've paid into gold to that of the value of my total gold holding (denominated in GBP) goes to 1, i.e. gold increases to a level such that any further purchases eventually exceed the historic "subsidy". At that point I will stop. If the ratio goes to more than 1 (i.e gold holding worth less than £s paid to purchase it) it will be time to start selling some off. Obviously if gold goes completely ballistic then all bets are off and I'll hold on for dear life

 

Is this a dumb plan?

sounds good to me..... you seem to have thought it through and are comfortable with it. My problem is that gold even at four digits still seems to be cheap [priced in "cheap" money] to me. Now, if it was at five digits.......

Well nearly at 1000....just a little curious.......have any of you considered at what point you will stop buying bullion. At 1000, 1200, 1500 or +??

I was thinking 1000, but I doubt I will be able to resist.

[it would have been good to put a survey together for this question but am not sure how to do that]

Nice graph Steve! As I said about a month ago [at the beginning of the swing up] I reckon we are in wave 3. I bought another 3 ounces yesterday around 955