Gold? Worth it?

Ark_Welder

sabretoothtigger wrote: »

...

What is an anonymous piece of knocked-up art supposed to prove?

Could you put into context the graph of the VIX? Especially relevant would be what events coincided with the peaks in volatility that have been joined by the green arrow.

Thats a good one,

It is. It shows that anyone using Sterling to purchase gold in the early 1980's had to wait more than 20 years before they could recover their initial balance. Gold was not exactly a [edit] store of wealth over that period.

Ark_Welder

greenbubble wrote: »

just in case people missed it.

Ron Paul vs Ben Bernanke: Is Gold Money?


i'd suggest watching it all , but the bits that make me giggle start at about 4 mins in.

i especially love benocide ben's uncomfortable pause before he answers

Ron Paul is 10 years too late. He would have been far more effective in showing a harsher attitude to Alan Greenspan when the expansion of credit took place in the the late 90's, early 00's under his tenure.

greenbubble

Ark_Welder wrote: »

Ron Paul is 10 years too late. He would have been far more effective in showing a harsher attitude to Alan Greenspan when the expansion of credit took place in the the late 90's, early 00's under his tenure.

agreed completly , but this is still not an excuse for not doing so now.

(tangent: i still find it funny when people think that the most powerful man on the planet is the US president , rather than the head of the a private corporation)

sabretoothtigger

Hasnt Ron Paul been moaning on about this going back to the 1970's He became a politician to stop people like Nixon ?

Problem is that moaning or 'negativity' is not popular. His own state likes him but the news casters literally laugh in his face sometimes

This is the problem with democracy to some extent, people love a candyman politician. Bush actually sent back tax cheques to people to spend, I'm pretty sure UK people would love that too

Ark_Welder wrote: »

What is an anonymous piece of knocked-up art supposed to prove?

The artwork is just supposed to quickly summarise a point I agree with. Rather then a wall of text its just quickly saying that the net wealth of USA is actually very low.
Japan is rich because they have a culture of saving. They have problems but knock all the debt off against their credit and they'd come out on top even in the worst scenario. The world has greatly valued Japanese production

If this happened to USA it would be in dire straits, so when Im asked 'what change do you see?'
Im saying we have a massive gap between underlying wealth and USA labelled as incredibly wealthy but its actually a poor country and what might happen if they are tested

Im very rich, I got credit cards. The reality is actually not nice but I can pretend for quite a while I think

It is. It shows that anyone using Sterling to purchase gold in the early 1980's had to wait more than 20 years before they could recover their initial balance. Gold was not exactly a [edit] store of wealth over that period.

I read my comment back and it sounds like I was being negative. I like the chart because it was taking annual average gold price which is actually more relevant then spikes
Gold is a century type investment, it doesnt do anything. At times of great productivity in the economy I expect gold to be ranked very low

At times of great distress and volatility I expect gold to be highly valued for what it is, indestructible value

Could you put into context the graph of the VIX? Especially relevant would be what events coincided with the peaks in volatility that have been joined by the green arrow.

VIX is the 'fear guage'. Sort of like an insurance premium, which relates to gold I think

The 1997 spike is the Asian currency crisis. The second spike before 2000 might be LCTM which was a giant hedge fund that was badly balanced against extreme risks, it collapsed and was bailed out. A mini bank crisis again
2001 spike is terrorism and 2003 was market bottom. 2008 is Lehmans

The green arrow is my attempt to show the trend is that Cost of Risk is rising. Which in theory is what gold price relates to, like Ben B says the insurance of extreme risks

Sterling to purchase gold in the early 1980'

I think it shows quite well gold wasnt half so bad. That isnt much of a drop really.
I totally agree gold is not a useful thing but apparently our currency is a poor store of wealth so in comparison you dont stand to lose much 'speculating' on gold.

Right now more then has been true for decades - gold is justified vs risks to our Sterling currency. USA is our #1 trading partner, we are the 3rd largest holder of USA debt

Ark_Welder

greenbubble wrote: »

agreed completly , but this is still not an excuse for not doing so now.

(tangent: i still find it funny when people think that the most powerful man on the planet is the US president , rather than the head of the a private corporation)

Bernanke has indulged in QE to avoid the mistakes made after the crash of 1929 when adherence to the gold standard at that time forced a reduction in credit at a time when the economy was deflating, causing recession to turn into depression. Failure to implement QE could have caused a similar situation. How it is unwound is what is relevant from now on.

To me, the main problem in the US is less the Fed and QE, it is more the two opposing political positions. Until it is accepted that both cuts and tax rises will be necessary, and that more regulatory oversight is needed in certain areas, then the problems will persist. Ron Paul is too interested in pandering to factions of his own political party in the hope of getting the Republican nomination to run for President.

Still, to get back to the subject of the thread...

Since a free market in gold was established 40 years ago, the price has fluctuated and has gone up considerably at times - especially in recent years. However, for half of those years, the nominal price of gold in Sterling was flat to falling, whilst the price in USD was more volatile, but trended lower. This period followed steep rises in price in both GBP and USD terms.

The rise in the gold price since the early/mid 2000's coincides with the increased use and availability of gold ETF's, making trading far easier. The problem that I see now is that there is so much interest in gold from retail investors, and when *we* retail investors latch on to something it is usually a sign that that particular market is at or near its peak. ETF's make it too easy to sell gold - physical holders (like myself) won't necessarily be able to move fast enough in the event that the market turns.

QE has pushed up all asset prices, and when it starts to be taken back out of circulation, why would one asset type that has benefited from its presence perform better than any of the others? Too much emotion involved around gold at times, and not enough cold, rational investment analysis.

Whatever an individual's view is on gold at this time, I will repeat what I've posted elsewhere: gold has a time and a place, but not all the time. and not in every case.

Ark_Welder

Overall, I think we hold a similar end-opinion of gold, it's just that we are following different paths to get there.

sabretoothtigger wrote: »

VIX is the 'fear guage'. Sort of like an insurance premium, which relates to gold I think

VIX is nothing to do with gold - at least, there are no direct links. Whether there are similarities that can be identified in charts, I think would just be coincidence.

The VIX guage shows the level expectation of how volatile the S&P 500 will be (a simplistic description, for my benefit as much as anything else, [edit] and ignoring the fact that it is volatility of related options. Those with more nouse are welcome to correct). But greater volatility doesn't necessarily mean that bad things are expected, it may just mean that trading volumes may increase, and even leading to an uptick in prices.

I suspect that the aparent increase in the peaks is due to advancements in, and increasing use of, trading methods and instruments, e.g. electronic trading and CFDs etc, making it easier and faster to trade large volumes for a small outlay.

sabretoothtigger wrote: »

I think it shows quite well gold wasnt half so bad. That isnt much of a drop really.
I totally agree gold is not a useful thing but apparently our currency is a poor store of wealth so in comparison you dont stand to lose much 'speculating' on gold.

But - and here's the rub - the returns available from bonds over the period were superior, and so were those from equities - even if you use an end-date of 1996 or 1997 so that the worst of that bubble is excluded. So speculating on gold over that period meant losing value when compared to those other asset types.

greenbubble

thank you for an enjoyable discussion, my first reaction is that we seem very close in thoughts.

Ark_Welder wrote: »

Bernanke has indulged in QE to avoid the mistakes made after the crash of 1929 when adherence to the gold standard at that time forced a reduction in credit at a time when the economy was deflating, causing recession to turn into depression. Failure to implement QE could have caused a similar situation. How it is unwound is what is relevant from now on.

so how would you describe the need for QE3 ? (as being hinted at now) was the first round not big enough ? how about the second ? when will we say enough is enough , after QE4 or QE5 maybe even QEn.

Ark_Welder wrote: »

To me, the main problem in the US is less the Fed and QE, it is more the two opposing political positions. Until it is accepted that both cuts and tax rises will be necessary, and that more regulatory oversight is needed in certain areas, then the problems will persist. Ron Paul is too interested in pandering to factions of his own political party in the hope of getting the Republican nomination to run for President.

the failure to act by either of the two parties is definatly a huge problem , but when good old uncle ben 'sugert*ts' bernanke suggests that he has the solution . what incentive is there for them to refuse. at least ron paul suggests an alternative and has been consistent.

Ark_Welder wrote: »

Since a free market in gold was established 40 years ago, the price has fluctuated and has gone up considerably at times - especially in recent years. However, for half of those years, the nominal price of gold in Sterling was flat to falling, whilst the price in USD was more volatile, but trended lower. This period followed steep rises in price in both GBP and USD terms.

The rise in the gold price since the early/mid 2000's coincides with the increased use and availability of gold ETF's, making trading far easier. The problem that I see now is that there is so much interest in gold from retail investors, and when *we* retail investors latch on to something it is usually a sign that that particular market is at or near its peak. ETF's make it too easy to sell gold - physical holders (like myself) won't necessarily be able to move fast enough in the event that the market turns.

i would suggest the rise since the early/mid 2000's is more down to instiutional investors being aware of the large credit expansion that was underway and hedging accordingly , yes i agree that increase in products giving 'us' the ability to invest in these products has played a part , but i disagree as to the size in its impact on price.

Ark_Welder wrote: »

QE has pushed up all asset prices, and when it starts to be taken back out of circulation, why would one asset type that has benefited from its presence perform better than any of the others? Too much emotion involved around gold at times, and not enough cold, rational investment analysis.

i think your cold rational analysis is a great contributon to this website regarding a topic very rarely covered.

what would be appreciated is if you have any pointers to evidence of any form of QE (money printing) that has been taken back out of circulation , im coming up blank and as such we are moving into uncharted waters.

Ark_Welder wrote: »

Whatever an individual's view is on gold at this time, I will repeat what I've posted elsewhere: gold has a time and a place, but not all the time. and not in every case.

i guess this is where i should make my disclosure , i have always held roughly 10% of my 'wealth' in gold (physical, i wouldnt even touch paper/certificate variants unless i was a dedicated day trader) , that was until 2007-8 upon which i have slowly every year since then increased that percentage (averaging in) to the 35% range that i now hold.


again thank you for a great contribution.

sabretoothtigger

Gold is cash so it shouldnt outperform company shares or bonds really

avoid the mistakes made after the crash of 1929 when adherence to the gold standard at that time forced a reduction in credit at a time when the economy was deflating, causing recession to turn into depression. Failure to implement QE could have caused a similar situation.

The USA dollar was fixed by 20 to 1 ounce of gold and this changed in 1934 I think to 35 to 1

So that was a devaluation of 43% in the worth of USA currency. Today they have also increased the ratio of dollars to any fixed asset backing the dollar so devaluing their currency standard

when *we* retail investors latch on to something it is usually a sign that that particular market is at or near its peak.

Most people dont own gold or anywhere near 10% of their wealth in gold. In the UK anyway most people savings would be with their pension funds, these funds almost never invest in gold.
So the UK does not care about gold, if anything they will sell to TV advertised companies

Shortly after the gold price started its ascent in the early 1970s, the price of other commodities such as oil also began to rise. While commodity prices became more volatile, the average exchange rate between oil and gold remained much the same in the 1990s as it had been in the 1960s, 1970s and 1980s.

Im fairly sure this is still the case. Oil isnt expensive for holders of gold.
Not many of us have been holding gold since the 1960's so its a bit theoretical but I do not think these correlations are coincidental

A British gold Sovereign is an old One Pound coin. That was its original use, today its worth 230 pounds (now made of copper) and the difference in those prices is inflation over 100 years.
Thats what holding cash costs people, its why people should be careful not to save any big amounts in cash

Ark_Welder

sabretoothtigger wrote: »

Gold is cash so it shouldnt outperform company shares or bonds really

I prefer to think of gold as being one asset class and cash as another, and that altering the balance between all asset types at, hopefully, appropriate moments, within the realistic timescale that is bounded by my lifetime, will enable me to maintain the quality of my lifestyle.

Gold has outperformed equities in the 2000's, by which I mean their percentage gains according to their relevant unit of measurement.

sabretoothtigger wrote: »

The USA dollar was fixed by 20 to 1 ounce of gold and this changed in 1934 I think to 35 to 1

Which, along with greater regulatory oversight, was part of the process by which the USA recovered from the Depression.

sabretoothtigger wrote: »

So the UK does not care about gold, if anything they will sell to TV advertised companies

I remember similar in the late 70's.

sabretoothtigger wrote: »

Im fairly sure this is still the case. Oil isnt expensive for holders of gold.
Not many of us have been holding gold since the 1960's so its a bit theoretical but I do not think these correlations are coincidental

Possibly not coincidental if you assume that gold is a safe-haven asset and a large supply of the world's oil in from the Middle East. Assuming straight lines... then oil is around 22 times its 1971 price (assuming pre-OPEC $3.60), gold is either 44 times (Bretton Woods $35), or 36 times (post-BW $42).

sabretoothtigger wrote: »

and the difference in those prices is inflation over 100 years.
Thats what holding cash costs people, its why people should be careful not to save any big amounts in cash

'Big' is difficult to quantify because it is relative to an investor's individual situation.

+++

greenbubble: in partial response to one point you raise, then the Wiki's Panic of 1837 might be of interest:

"According to economist and historian Murray Rothbard, between 1839 and 1843, real consumption increased by 21 percent and real gross national product increased by 16 percent, despite the fact that real investment fell by 23 percent and the money supply shrank by 34 percent."

A more long-winded (windy?) response to follow!

[edit]
Your percentage allocation to gold is higher than my percentage allocation to cash!

sabretoothtigger

If I did want to cash in some gold sovereigns. Where is the best place to do that and whats their turn around time, does anyone know offhand.

This morning has a new peak on gold and inversely I might be able to use the cash on things where the price has fallen. BARC has fallen by about a third for example, my estimate was about 200p a while back

Big' is difficult to quantify because it is relative to an investor's individual situation.

Over 10% holding should be considered a bit wobbly I think