GOLD- the only true currency?

Lol_UK_2

Blah99 wrote: »

It's not demand alone that produces a bubble, it's scarcity. That's an important distinction, and you need both. There would be no gold bubble if we could all dig some up in the back yard, because there would be enough resource to satisfy demand. It's the same with oil - the price rises on speculation of scarcity due to, for example, a refinery fire or middle east conflict.

I think there's a big difference between a speculative bubble..like the housing/real estate bubbles that have been manipulated by over- pricing and easy credit (rather than scarcity), which makes the value of these sorts of assets highly volatile in the current financial crisis- and a 'gold' bubble (which I don't think there is!)...

The high demand for gold over the coming months/years might create what appears to be a speculative bubble, but I think it will be more of a correction in
it's value- and as the mining of gold stays pretty consistant over the years, we are dealing with a finite resource (unlike oil that is controlled by demand depending on usage).

tradetime

Blah99 wrote: »

It's not demand alone that produces a bubble, it's scarcity. That's an important distinction, and you need both. There would be no gold bubble if we could all dig some up in the back yard, because there would be enough resource to satisfy demand. It's the same with oil - the price rises on speculation of scarcity due to, for example, a refinery fire or middle east conflict.

Whilst scarcity may be useful in developing a bubble it certainly is not necessary, or are you suggesting that Nasdaq stocks were scarce back in the late nineties, or perhaps US treasury bonds are scarce today? Bubbles are speculative in nature and therefore predominantly demand driven. supply constraints simply effect the speed with which they develop.

cloud_dog

I supose all I am trying to do is to strip everything back to its bare minimum.

For 'things' to rise, and for a bubble to form, requires demand. Different 'things' rise due to different elements, situations, or scenarios which cause demand (housing, tech bubble, commodities (recently), bonds, vintage cares (a little while ago), etc, etc), were all caused by demand. They would have had different drivers but, or reason for the demand, but demand caused the rise / bubble.

The important aspect is in trying to understand the demand and acting accordingly, and identifying triggers / scenarios which will give you an exit point.

Without an exit strategy investing is throwing money down the drain.

cloud_dog

tradetime

They would have had different drivers but, or reason for the demand, but demand caused the rise / bubble.

In the case of a bubble I would personally say the reasons are the same age old duo, fear and or greed, most often a mixture of both.

cloud_dog

tradetime wrote: »

In the case of a bubble I would personally say the reasons are the same age old duo, fear and or greed, most often a mixture of both.

Absolutely, and it is in recognising the signs of fear or greed which will allow you to make the most out of your investment and exit.

Blah99

tradetime wrote: »

Whilst scarcity may be useful in developing a bubble it certainly is not necessary, or are you suggesting that Nasdaq stocks were scarce back in the late nineties, or perhaps US treasury bonds are scarce today? Bubbles are speculative in nature and therefore predominantly demand driven. supply constraints simply effect the speed with which they develop.

It's a different type of scarcity. In the case of treasury bonds, the scarcity is in "good" interest rates causing a hedge in bonds. The scarcity of A drives a bubble in B. You'll note how I subtly totally ignore your point about the nasdaq

like the housing/real estate bubbles that have been manipulated by over- pricing and easy credit (rather than scarcity)

Again, I see this as a symptom of scarcity. Housing has been scarce, in that there is limited physical space for further house building and a limited amount of new housing being built compared to the increase in population size of the UK.

Easy credit has of course fuelled the bubble, but it's not the cause.

tradetime

Blah99 wrote: »

It's a different type of scarcity. In the case of treasury bonds, the scarcity is in "good" interest rates causing a hedge in bonds. The scarcity of A drives a bubble in B. You'll note how I subtly totally ignore your point about the nasdaq
.

LOl on the subject of bonds I'd suggest there is plenty of interest to be had in corporate bonds, the reason for the bubble in treasuries is fear. Money that has to be in the market somewhere, parked at a very poor rate because they're afraid to put it to work anywhere else currently, that and the fact that the Fed suggested they may buy bonds to drive the yield down.

sabretoothtigger

Do you think the fed buying corporate bonds could even be a good investment, better then bank shares at least

Is this what the BOE is proposing or they will just buy their own gilts which definitely seems whack

I always thought buying the toxic debt was the best bet because its basically land isnt it


How about buying gold and corporate bonds, if the bonds fail gold will rocket

cloud_dog

The below linked article is quite an intesting read and provides useful info at a high level, not something seasoned investors will not already know but quite useful for the newer players and those who might be caught up in the hype.....

http://www.thestreet.com/story/10467355/4/all-you-need-to-know-about-gold.html

I quite liked the para...

Quote: "The brief history lesson was necessary, I think, to understand why many feel that gold is a wise investment at a time when government is creating paper money out of thin air. They remember it was only 37 years ago, enough time for a generation to forget, that foreigners decided they didn't want to hold U.S. dollars."

sabretoothtigger

Jim Rogers is talking on Channel 4 news in a bit. He recently recommended not buying gold short term as it approached 1000 and it has fallen back some