Buying in to Gold

Bazn

cheerfulcat wrote: »

Gold is a " safe haven " for when things go pear-shaped, as they will sooner or later ( they always do! ). It is not a bad thing to have a small amount of exposure to gold in a wider portfolio of investments.

hahaha yes i do in fact have some exposure to gold... but only cos of the "greater fool" philosophy whereby i know that everyone else buying it is going to push up the value!

but as for intrinsic value, i really don't see how gold is so special. the old claim of "its always been that way" and "it has been currency in the past" are just outdated i think.

what value does gold ACTUALLY have for you? the value is a nominal value placed on it by society. it is not like god declared gold to be valuable... ok its rare and it looks nice, but its actual value in monetary terms is totally elastic.

and as for the argument of my £10 losing value in my wallet... have people so quickly forgotten that gold lost value throughout the 1980s and 1990s?

if it truly was a safe haven, then it it should have simply risen steadily in line with inflation over the last 25 years. but it has done anything but this... it has yoyo-ed from $800 to $250 and back up again...

by the way i don't mean to offend anyone here... i'm just participating in a healthy debate!

cloud_dog

Bazn wrote: »

if it truly was a safe haven, then it it should have simply risen steadily in line with inflation over the last 25 years. but it has done anything but this... it has yoyo-ed from $800 to $250 and back up again...

Bazn, a few good points but I feel you are being a little bit simplistic in the above point........name one thing that has constantly gone up in value, I can't think of anything.

Normal market conditions apply (or abnormal depending on how paranoid you are). Gold has a value and that value is very much linked to supply and demand, like many stocks, etc. The other thing you cannot ignore is that new resources take many many years to come in to production which is another reason why prices fluctuate, or go in cycles (I'm sure you are aware of this).

What is difficult to attribute is the actual 'value' of your £10 note in your pocket. To you it is £10, was £10 last year, and will be £10 next year, pretty stable and therefore pretty good. But surely you notice that year on year you are actually buying slightly less each year. So £10 has a value but its purchasing power is decreasing, and this is probably less related to increasing prices and more to do with depreciating fiat value.

Gold prices will fluctuate but it will always have value. I'll admit I am heavilly invested in resource, PM, and base metals investments

Good discussion anyway

cloud_dog

free4440273

Would people here say that silver coinage is also a worthwhile investment. I have read that there is a massive shortage of silver also, and that it is under-valued at the moment? Thanks all

Bazn

hmm well silver certainly used to be undervalued... but it has nearly doubled over the last couple of years so not so sure now...

i think the price is being propped up by speculation tho... demand for the various silver ETFs has pumped up the price. from a fundamental view it is less compelling... a major use in the past was in photographic film, but in the digital age this is less relevant...

Browntrout_2

Apart from a 'store of value' I cannot see the point in owning the physical metal in any form other than jewellery.

The 'store of value' story becomes relevant if paper money is not honoured, and when was the last time that happened in a developed economy?


And if the BoE did fail to 'pay the bearer on demand' then having a few dozen kruggerands is not going to help much anyway.

Without costs, if you buy 1oz at $650 and the price rises to $1000, you've made a 54% return, with no other dividends payable.

However if you buy Newmont Mining (NYSE NEM) shares, and for instance they have an average cost of production let's say $400, their profits rise from 63% to 150%, and they go on making these profits year in year out, as long as the price stays high.

If you don't have the time or inclination to follow individual mining companies and their suppliers, and I don't, then pay 1.5% per annum in managed fund.

cloud_dog

Browntrout wrote: »

The 'store of value' story becomes relevant if paper money is not honoured, and when was the last time that happened in a developed economy?

Fair point but, developed economy curriencies have been revalued (downwards normally) in the recent (living memory) past. The posibility of the US (for example) inflating their way out of trouble is a real posibility and the process and affects will not be pleasant.

Browntrout wrote: »

And if the BoE did fail to 'pay the bearer on demand' then having a few dozen kruggerands is not going to help much anyway.

Kruggerands no but, some of the Sterling Gold coins are still legal tender (I believe).

Browntrout wrote: »

Without costs, if you buy 1oz at $650 and the price rises to $1000, you've made a 54% return, with no other dividends payable.

Browntrout wrote: »

However if you buy Newmont Mining (NYSE NEM) shares, and for instance they have an average cost of production let's say $400, their profits rise from 63% to 150%, and they go on making these profits year in year out, as long as the price stays high.

Agreed, gearing is often reflected within a gold stocks SP, hense why so many 'geared' gold minig companies have or are trying to unwind their hedged positions - Newmont being the latest. This raises another interesting question, why are these huge gold producers paying billions of $$$ to unhedge themselves - perhaps they have a view as to where the Gold price may go in the future?

I think the point is that Gold is seen as an ultimate safe haven (accepting the price can go up and down) as it always has a value, something that paper investments may not (stocks, bonds, currency, etc, etc).

bazn wrote:

i think the price is being propped up by speculation tho... demand for the various silver ETFs has pumped up the price. from a fundamental view it is less compelling... a major use in the past was in photographic film, but in the digital age this is less relevant...

A couple of points.....Perhaps people should consider why there is speculative money or demand for Silver ETF, etc. Re the possibilities for Silver, people who tend to believe in the commodities super-cycle tend to believe that Silver will out return Gold going forward.

One effect which absolutely will drive demand is the growth in China, India and the Far East. The industrialisation of these nations will dwarf what happened in the west, and with all those soon to be created wealthy people will come demand for the 'niceties' in life.

(apologies for the essay)

cloud_dog

edit: Just wanted to add that peoples perspective on timescales will also affect their perception of value and worth, etc. People actually buying in to physical PM or ETF's are more likely to have largish timescales, i.e. perhaps the next decase.

geoffky

cgnao wrote: »

Gold is not a commodity. It is true money. Unlike dollars, pounds, euros and others, it is THE ultimate form of payment and not someone else's liability. Governments can't print or inflate gold. Which is why gold is the best store of value known - and it has been for for the last 5000 years.

Gold is at the moment deeply undervalued, yet few understand it. Before the 1929 crash, for every 20 dollars in circulation there was one ounce of gold stored in a vault. In 1933, Roosevelt made owning gold illegal for US citizens and started printing dollars. The dollar was still backed by gold for foreign central banks though, at a fixed rate of 35 dollars/ounce. In the late sixties, to pay for the Vietnam War, the US accelerated the dollar printing presses, but the French got smart and started redeeming their dollar reserves in gold. After unsuccessful attempts to rig the market (London Gold Pool 1968) in 1971 Richard Nixon closed the gold window and stopped the dollar's gold backing. Currencies started to float against each other and the dollar printing presses went into overdrive. There are now 185,000 (yes, 185 thousand!!!) dollars in circulation for every ounce of gold on the planet. Yet gold is still only worth about 430 dollars/ounce. This is an effect of the gold price suppression operated by the world's central bank and the international monetary fund, who surreptitiously lend gold to big commercial banks. The lent gold is then sold on the market to suppress price. See www.gata.org for more on this subject. The suppression scheme is ultimately destined to fail because of the finite amount of physical gold available. There are already signs of this. Central bank sales have slowed dramatically, and countries like Russia, China and even Argentina are increasing their gold reserves.

The increase of the gold price has been for the last four years mainly a dollar phenomenon. I.e. gold has gone up much less in pounds, euros and very, very little in swiss francs. This is will change soon, as very dark clouds are gathering at the horizon.

To conclude, this is an excerpt from an article I found some time ago. I saved it on my hard disk, don't remember the website address and can't find it anymore.

"One day there will be an uncontained financial accident. Within hours credit facilities will be withdrawn, and there will be forced derivative position liquidations at organisations around the world. Modern derivatives will be the brokers’ loans of 1929, resulting in margin calls, liquidations, the evaporation of confidence, spectacular losses, a credit squeeze and financial chaos. The liquidations of assorted off-balance sheet positions will cause the realisation of big losses in many highly geared positions. This will in turn cause dramatic re-ratings of the creditworthiness of many borrowers.

The crisis will develop rapidly in the international bond markets - where corporations and western governments have borrowed cash consistently and cheaply. Borrowers whose worst excesses are currently hidden off balance sheet in the derivatives markets will find themselves insolvent, and their bonds and shares will plummet in line with their credit ratings. Oversupply of bonds from hurried sellers will drain the markets of cash and the selling of further bonds into the market will become impossible - even at distress prices for good bonds. The bondholders - pension funds, deposit takers and other collectors of the public’s surplus cash - will be drawn in, and will see that they are in no position to pay back their depositors.

Insurance companies will watch as the portfolios backing their obligations are destroyed. Their capital will be inadequate and they will suspend paying their annuity holders. Property secured lenders and banks will be standing in-line, having lent widely in the mortgage, debt and derivatives markets. Of the £600,000,000,000 of gross sterling deposits in the UK much is on relatively short periods (e.g. 30 day deposit accounts) and lent long term as mortgages on overpriced assets. Not the tiniest fraction of this amount of money can possibly be delivered by the banks in cash back to their depositors.

In 'normal' times it does not matter if a bank's withdrawals exceed immediately available cash resources, because the bank can gather up some cash in bond and money markets. But in a credit crunch they cannot do this. There will be queues at the bank but the doors will be shut, Argentina style.

Houses will appear on the market, as the equity rich seek to secure the cash which they regarded as their savings. But no-one will have the cash or the finance to buy them, and house prices will slump in search of a few brave buyers. Mortgage lenders will go hunting cash to stay afloat - they'll suspend new lending. The banks and building societies will increase borrowing rates, without increasing deposit rates, and they will suspend withdrawals. Industrial businesses will face a slump in demand like they have never seen. Unemployment will explode.

Only the debt free who have invested in super-cautious organisations and instruments will emerge with liquid assets."

well looks like he nailed that one!!!!

cgnao

geoffky wrote: »

well looks like he nailed that one!!!!

You ain't seen anything yet.

http://news.bbc.co.uk/1/hi/magazine/7657178.stm
QUOTE
Banking on gold

By Murray Cox
BBC News

Four years ago, fearful of a property crash, David and Maureen Somers sold their house and bought gold. It's a tactic suddenly popular with those seeking a safe haven for their money.


See also

http://www.greenenergyinvestors.com/index.php?showtopic=3285

GTG

Another reason why you may want to hold gold (especially if you're a US resident)

http://uk.youtube.com/watch?v=_d90pMuhp90

StevieJ

cgnao wrote: »

Gold is not a commodity. It is true money. Unlike dollars, pounds, euros and others, it is THE ultimate form of payment and not someone else's liability. Governments can't print or inflate gold. Which is why gold is the best store of value known - and it has been for for the last 5000 years.

Gold is at the moment deeply undervalued, yet few understand it. Before the 1929 crash, for every 20 dollars in circulation there was one ounce of gold stored in a vault. In 1933, Roosevelt made owning gold illegal for US citizens and started printing dollars. The dollar was still backed by gold for foreign central banks though, at a fixed rate of 35 dollars/ounce. In the late sixties, to pay for the Vietnam War, the US accelerated the dollar printing presses, but the French got smart and started redeeming their dollar reserves in gold. After unsuccessful attempts to rig the market (London Gold Pool 1968) in 1971 Richard Nixon closed the gold window and stopped the dollar's gold backing. Currencies started to float against each other and the dollar printing presses went into overdrive. There are now 185,000 (yes, 185 thousand!!!) dollars in circulation for every ounce of gold on the planet. Yet gold is still only worth about 430 dollars/ounce. This is an effect of the gold price suppression operated by the world's central bank and the international monetary fund, who surreptitiously lend gold to big commercial banks. The lent gold is then sold on the market to suppress price. See www.gata.org for more on this subject. The suppression scheme is ultimately destined to fail because of the finite amount of physical gold available. There are already signs of this. Central bank sales have slowed dramatically, and countries like Russia, China and even Argentina are increasing their gold reserves.

The increase of the gold price has been for the last four years mainly a dollar phenomenon. I.e. gold has gone up much less in pounds, euros and very, very little in swiss francs. This is will change soon, as very dark clouds are gathering at the horizon.

To conclude, this is an excerpt from an article I found some time ago. I saved it on my hard disk, don't remember the website address and can't find it anymore.

"One day there will be an uncontained financial accident. Within hours credit facilities will be withdrawn, and there will be forced derivative position liquidations at organisations around the world. Modern derivatives will be the brokers’ loans of 1929, resulting in margin calls, liquidations, the evaporation of confidence, spectacular losses, a credit squeeze and financial chaos. The liquidations of assorted off-balance sheet positions will cause the realisation of big losses in many highly geared positions. This will in turn cause dramatic re-ratings of the creditworthiness of many borrowers.

The crisis will develop rapidly in the international bond markets - where corporations and western governments have borrowed cash consistently and cheaply. Borrowers whose worst excesses are currently hidden off balance sheet in the derivatives markets will find themselves insolvent, and their bonds and shares will plummet in line with their credit ratings. Oversupply of bonds from hurried sellers will drain the markets of cash and the selling of further bonds into the market will become impossible - even at distress prices for good bonds. The bondholders - pension funds, deposit takers and other collectors of the public’s surplus cash - will be drawn in, and will see that they are in no position to pay back their depositors.

Insurance companies will watch as the portfolios backing their obligations are destroyed. Their capital will be inadequate and they will suspend paying their annuity holders. Property secured lenders and banks will be standing in-line, having lent widely in the mortgage, debt and derivatives markets. Of the £600,000,000,000 of gross sterling deposits in the UK much is on relatively short periods (e.g. 30 day deposit accounts) and lent long term as mortgages on overpriced assets. Not the tiniest fraction of this amount of money can possibly be delivered by the banks in cash back to their depositors.

In 'normal' times it does not matter if a bank's withdrawals exceed immediately available cash resources, because the bank can gather up some cash in bond and money markets. But in a credit crunch they cannot do this. There will be queues at the bank but the doors will be shut, Argentina style.

Houses will appear on the market, as the equity rich seek to secure the cash which they regarded as their savings. But no-one will have the cash or the finance to buy them, and house prices will slump in search of a few brave buyers. Mortgage lenders will go hunting cash to stay afloat - they'll suspend new lending. The banks and building societies will increase borrowing rates, without increasing deposit rates, and they will suspend withdrawals. Industrial businesses will face a slump in demand like they have never seen. Unemployment will explode.

Only the debt free who have invested in super-cautious organisations and instruments will emerge with liquid assets."

I am glad that Nostradamus is not this good at forecasting :eek: