Gold ETFs: diversification?

merlingrey

Daniel_Elkington wrote: »

Ok, so the metaphor is flawed - the point is still valid.

Gold can go bust - a nation can seize the gold and ban trades - it's quite a good metaphor, just not perfect:D

Yeah and they could take your house and throw you in a gas chamber.

E.L.James

Daniel_Elkington wrote: »

Ok, so the metaphor is flawed - the point is still valid.

Gold can go bust - a nation can seize the gold and ban trades - it's quite a good metaphor, just not perfect:D

Gold and silver would just revalue on the black market or free market.

They can never go broke. They are the only asset classes that are outside of the financial system. There is no counterparty risk, they do not depend on anything, they ARE the value in and of themselves. Gold and silver atoms are where the value is held, not in anyone promises.

merlingrey

I think what I wanted to mention is in commodities the diversification you think you get is a bit of an illusion since

1. The metals all track alongside each other
2. Commodity prices are a function of not only supply and demand but how much currency is following the demand side and how much currency is being spent on the supply side, so their prices are all a function of the currency supply.

3. Some commodities are mined alongside each other in same locations and silver itself is like a 2x leverage on gold so when gold goes up 1% silver goes up 2%.

What people might say is that gold is "useless" compared to the other metals, but two very important points to note on this:

1. The usefulness means it is priced according to the economy it is driving, I.e if the economy is going down then the demand for copper might sink like a stone, so the usefulness could go against you.

2. Gold is actually very useful but there is not enough of it to be useful.
For example suppose that gold was as common as Iron, well everybody would be using it, it probably would have been used instead of iron for many things in an alloyed form it would be in the cheapest electronics, we might never had bothered using paint (not for anti-corrosion) put simply it would be used everywhere.

Something is actually more useful when everyone is not climbing over each other to get it BUT whether there was 1 ounce of gold or an infinite amount of gold does not change it's physical properties, the amount just changes economic usefulness. (Both 1 ounce of gold and an infinite amount of gold have an economic value of £0, same as anything else)

E.L.James

merlingrey wrote: »

Commodity prices are a function of not only supply and demand but how much currency is following the demand side and how much currency is being spent on the supply side, so their prices are all a function of the currency supply.

Very interesting post, you sound well educated in such matters. What kind of backround do you come from?

Firstly about this point, yes you are right and when you consider that gold and silver are world markets, and the worlds currency supply is expanding at an exponential rate, it looks like the prices have a long way to go up. Especially as most countries have no choice but to keep expanding the currency supplies at an exponential rate. The more uncertain the crisis is looking the more people want to hold something tangible. The more units of all the worlds currencies are flowing into gold and silver, especially in the East. China, Japan and India.

E.L.James

merlingrey wrote: »

Some commodities are mined alongside each other in same locations and silver itself is like a 2x leverage on gold so when gold goes up 1% silver goes up 2%.

What people might say is that gold is "useless" compared to the other metals, but two very important points to note on this:

1. The usefulness means it is priced according to the economy it is driving, I.e if the economy is going down then the demand for copper might sink like a stone, so the usefulness could go against you.

2. Gold is actually very useful but there is not enough of it to be useful.
For example suppose that gold was as common as Iron, well everybody would be using it, it probably would have been used instead of iron for many things in an alloyed form it would be in the cheapest electronics, we might never had bothered using paint (not for anti-corrosion) put simply it would be used everywhere.

Something is actually more useful when everyone is not climbing over each other to get it BUT whether there was 1 ounce of gold or an infinite amount of gold does not change it's physical properties, the amount just changes economic usefulness. (Both 1 ounce of gold and an infinite amount of gold have an economic value of £0, same as anything else)

Many are of the opinion that there has been a concerted effort to make it look like there is less gold in the world than there actually is. But the truth is millions of tons of gold are already in play. Millions of tons of gold could be sold into the market at any time. When reported official numbers say there is only a couple of hundred thousand tons of gold in the world.

Same with diamonds. A concerted effort to give the impression they are more rare than they actually are to keep the prices inflated.

At the same time there has been a concerted effort to make it look like there is more silver in the world than there actually is. When in fact all the once large bank stockpiles of silver bullion have now been depleted only the gold remains in the vaults.

merlingrey

No background I just read a lot and think too much.

Call it my opinion if you like.

E.L.James

merlingrey wrote: »

No background I just read a lot and think too much.

Call it my opinion if you like.

Me too.

We are told that if all the available gold bullion in the world were put together it would fit on a tennis court. It would be about a 20 to 25M cube. This is just the sum of all the central banks and other known about stockpiles. Many are saying this cube would be much much bigger, if all the huge stockpiles that have supposedly been lost were also included. That actually millions of tons of gold have been mined or panned through history and only a very small amount is not with us anymore from being lost.

Some people think it would be a much, much larger cube of gold because gold has been treasured and hidden away through history, there are some well documented very large gold hoards that have been supposedly lost and are unaccounted for in the world, but its hard to know for sure, its very unlikely they were really lost think about it, what really could have happened to these very large gold stockpiles? As they are passed on through the millenniums they are fought over and hidden away. They could be sold into the market at any time.

Because gold is not used up as silver is. Gold lasts forever. This is not true for silver bullion. Banks have run out of silver stockpiles it has all been used up. If all the silver bullion available in the world were put together it would be about an 11M cube, it would fit on less than half a tennis court. Some people think it would be a smaller silver cube because silver is now getting consumed and taken off the available market at the fastest rate in all of history. This 11M cube of available silver bullion includes estimations of privately held silver bullion by investors and imagines that all the ETFs and silver derivatives are telling the truth that they buy and store 1oz of real silver bullion for every 1oz of paper promises they sell to investors. Many believe they do not store as much silver as they promise to people on paper. It has been proven in some cases that they just take your currency and issue a broken promise bit of paper. Its free currency for them.

E.L.James

So what if we discovered one day that gold is NOT very scarce? That cube of available gold is well over 25M some are saying its much larger. And that cube of available silver bullion is now much smaller than 11M? What then all you Gold Bugs? Would you stop being a Gold Bug? Would you change your opinion on the "value" of gold as a monetary metal? Would you PANIC to try and get out of Gold and into something that truly is scarce?
From many experts research Gold is not scare at all...as in MILLIONS of TONS are already in play. This is just not true with silver.

merlingrey

I knew a lot from reading some basic economic stuff and following markets and making many mistakes just as a hobby and just to have savings on the side, my biggest education was losing half my cash chasing losses on bank shares without understanding what the hell was going on back in 2008.

When you lose money like that it hurts, but I dusted myself off and got over it but when that happens to you you want to know why, so you research.

For me the penny dropped when I watched this guy a couple of years back:


https://www.youtube.com/watch?v=8WBiTnBwSWc

I think that is a different video but it matters not since his basic thesis does not change.

What I realised is that everything that has been happening is a symptom of resource depletion, but I advise watching the vid to get a rundown of why.

Could it be wrong, i wish it was but it just seems common sense, as I say the penny dropped.

merlingrey

E.L.James wrote: »

So what if we discovered one day that gold is NOT very scarce? That cube of available gold is well over 25M some are saying its much larger. And that cube of available silver bullion is now much smaller than 11M? What then all you Gold Bugs? Would you stop being a Gold Bug? Would you change your opinion on the "value" of gold as a monetary metal? Would you PANIC to try and get out of Gold and into something that truly is scarce?
From many experts research Gold is not scare at all...as in MILLIONS of TONS are already in play. This is just not true with silver.

Depends if you can get to it, scarcity is not the same as accessibility, the entire moon or the centre of the earth could be made of gold but it wouldn't affect price.

So someone can tell you there is more gold in the earth than you think but it's pointless if it costs a fortune to get to in energy/ money or impossible to get to.