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Gold prices
Posted on 8/6/16 at 9:45 pm
Posted on 8/6/16 at 9:45 pm
What does everyone think about gold? Is the run over or will continue move upwards over the next 6-12 months?
Although it doesn't track gold prices I really like Vanguard Precious Metals and Mining Inv VGPMX, but not sure if it is too late to buy.
Although it doesn't track gold prices I really like Vanguard Precious Metals and Mining Inv VGPMX, but not sure if it is too late to buy.
2
Posted on 8/6/16 at 9:56 pm to FriscoTiger
"Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn't produce anything." - Warren Buffet
Posted on 8/7/16 at 3:02 am to FriscoTiger
quote:
too late to buy
I would not buy right now. I'm watching GLD. It's at 127. I won't buy until it gets below 110.
Posted on 8/7/16 at 7:06 am to LSURussian
quote:
Buffet
*Buffett
To answer the OP, theoretically the fundamental value of gold should hover around a constant ratio to a basket of goods. One webpage puts that post-1971 historical ratio for an ounce of gold at 3.4 times the CPI: LINK.
Gold should be viewed as a foreign currency, albeit a foreign currency that tends to grow slower than official sovereign currencies, with growth in global gold supply from mining operations coming in at about 2-3% per year. Small growth is still growth though, so in theory there's a reason for an ounce of gold to actually lose value over time, rather than holding steady at 3.4 baskets of CPI goods & services.
At $1,336.42/oz., the current spot price of gold ( LINK) is at about 5.54 times the CPI for June, which was 241.038. A historical 3.4 target price might be closer to around $820.
However, gold doesn't really behave well relative to the CPI. It is a fear gauge in the sense that the ratio only spikes toward 8 (in 1980-81 or 2011-12) when there is some serious apprehension in the market toward other asset classes.
(Note that you can also go back to 1265 to show another large peak in the value of gold that occurred around 1500, as discussed in this article from The Atlantic. Note also that the official price of an ounce of gold was 2.01 GBP back then, and that this is when the consumer basket only cost about 0.154 GBP compared to 100.000 GBP in 2010, and when nominal per capita GDP was only 4 GBP per person per year. That 2.01 GBP per gold ounce would amount to a ratio over 13 in Year 1500 prices, and about 1305 GBP per gold ounce in today's prices, and the current spot price of gold is only 1022 GBP, so prices have been higher in the distant past, although for the most part they have not.)
Unlike alternative currencies such as Bitcoin, gold is a currency with a long historical tradition of being backed as legal tender by sovereign governments, and although there was a great separation from gold-backed currencies at the end of Bretton Woods in 1971, central banks continue to stockpile massive amounts of official gold reserves.
The existence of such reserves are a signal that central banks continue to see gold as a foreign currency having exogenous value--because it is held by other central banks. Gold also has practical value from electronics, commercial chemistry, and medicine, but it is not the driver of its market value.
For the current market environment, gold would ordinarily be useful as a nice hedge against both stocks and bonds. However, with gold price ratios already elevated into the high range, I'm not sure how attractive it can be as a hedge. If inflation does start to creep up, and the Fed raises rates, and the markets slump, then gold might very well rise to near that 8.0 times CPI ratio again. So there are good reasons to expect a bump in gold sometime over the next 6-12 months. But I don't think it will be major, and given the world's deflationary headwinds since 1994, there are good reasons to fear that inflation won't materialize anytime soon, and gold will slump.
Posted on 8/7/16 at 11:09 am to Doc Fenton
Interesting, although I've never thought gold was a good hedge against inflation for reasons I won't bore you with. It is however a source of revenue to central banks as it throws off lease income.
Gold is not the end all of investments. Having said this, I believe most prudent people if they have a truly balanced portfolio do keep a small percentage in physical commodity, as opposed to the paper derivative.
Silver, land and other real property are my preferred choices. I own very little gold, but I do own it.
Gold as a paper trade is somewhat predictable. And manageable. If one waits until gold prices are distressed, and purchases leap calls on selected junior miners, almost always these junior miners are a leading indicator of an eventual spike, whether short or long term, in the underlying commodity price.
But when I say manageable, I mean a trade with a loss certain as spot is heavily influenced by what I consider to be inappropriate trading by banks and institutions in the futures market. I'm not alone in this opinion, and it isn't some sort of Zero Hedge skewed opinion either.
There was somewhat of an investigation about this by CFTB, which had no conclusion.
JP Morgan being one institution that sells contracts in large enough amounts to impact prices, and from time to time starts to take physical possession of gold. Mostly silver. JP Morgan also divested a lot of their commodity operations, so I'm not clear exactly how they do this, but you can see their proprietary house accounts on COT still.
It's tough to track, but if you read OI, and also read specifically COT and delivery, you can see it in arrears, and make educated guesses prior to their taking possession.
This grows more cloudy as JP Morgan is custodian while Bank of NY Mellon is trustee for paper SLV. So they can hedge, although as much as some on here hate it when Congress people start asking questions in hearings, sunlight is the best disinfectant, and I'm in favor of any governmental agency that has historically expanded monetary and fiscal policy to answer to Congressional oversight.
I own BRK. But I am also aware that Buffett has made several comments about both derivatives and gold. He (with shareholder monies) traded the derivative of the derivative of silver, lost his arse, and buried it in an annual report several years back. Buffett has always guarded his words carefully, and like everyone else, with him it is trust but verify for me. BRK is probably not a good stock for most to own the closer they approach retirement, and I only have a couple of shares. I do buy what BRK owns however, as it has always bothered me Warren Liberal Buffett likes dividend payers, but doesn't like to pay dividends.
An abbreviated post, but for these reasons, I never own SLV or GLD, I trade their derivatives, which is the most conservative and simplest way to do this. The smartest way in my opinion as well. Owning a derivative of a derivative. Insuring the portfolio with a derivative. I'm about as conservative and unsophisticated as you can get, and when I hear crazy, reckless things like buy and hold, I run as fast as I can from this type of fly by night dangerous and risky approach.
Edit Doc fenton got two downvotes. I wonder how many I will get.
Gold is not the end all of investments. Having said this, I believe most prudent people if they have a truly balanced portfolio do keep a small percentage in physical commodity, as opposed to the paper derivative.
Silver, land and other real property are my preferred choices. I own very little gold, but I do own it.
Gold as a paper trade is somewhat predictable. And manageable. If one waits until gold prices are distressed, and purchases leap calls on selected junior miners, almost always these junior miners are a leading indicator of an eventual spike, whether short or long term, in the underlying commodity price.
But when I say manageable, I mean a trade with a loss certain as spot is heavily influenced by what I consider to be inappropriate trading by banks and institutions in the futures market. I'm not alone in this opinion, and it isn't some sort of Zero Hedge skewed opinion either.
There was somewhat of an investigation about this by CFTB, which had no conclusion.
JP Morgan being one institution that sells contracts in large enough amounts to impact prices, and from time to time starts to take physical possession of gold. Mostly silver. JP Morgan also divested a lot of their commodity operations, so I'm not clear exactly how they do this, but you can see their proprietary house accounts on COT still.
It's tough to track, but if you read OI, and also read specifically COT and delivery, you can see it in arrears, and make educated guesses prior to their taking possession.
This grows more cloudy as JP Morgan is custodian while Bank of NY Mellon is trustee for paper SLV. So they can hedge, although as much as some on here hate it when Congress people start asking questions in hearings, sunlight is the best disinfectant, and I'm in favor of any governmental agency that has historically expanded monetary and fiscal policy to answer to Congressional oversight.
I own BRK. But I am also aware that Buffett has made several comments about both derivatives and gold. He (with shareholder monies) traded the derivative of the derivative of silver, lost his arse, and buried it in an annual report several years back. Buffett has always guarded his words carefully, and like everyone else, with him it is trust but verify for me. BRK is probably not a good stock for most to own the closer they approach retirement, and I only have a couple of shares. I do buy what BRK owns however, as it has always bothered me Warren Liberal Buffett likes dividend payers, but doesn't like to pay dividends.
An abbreviated post, but for these reasons, I never own SLV or GLD, I trade their derivatives, which is the most conservative and simplest way to do this. The smartest way in my opinion as well. Owning a derivative of a derivative. Insuring the portfolio with a derivative. I'm about as conservative and unsophisticated as you can get, and when I hear crazy, reckless things like buy and hold, I run as fast as I can from this type of fly by night dangerous and risky approach.
Edit Doc fenton got two downvotes. I wonder how many I will get.
This post was edited on 8/7/16 at 11:12 am
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