There are many reasons to "invest " in Gold, these aren't among them.
1) Gold goes up during deflation.
How can anyone be so stupid to make that conclusion is beyond me. The only fiat era deflation we have seen is in Japan and Gold went down more than 50% during that time in Yen. Could Gold go up during this "deflation" should we have it? Yes, but perhaps it will not. Any Jackass (yeah I am looking at you Mish) who looks at sample size of 1 for a study and concludes the opposite is beyond redemption.
2) Gold is not in a bubble because none of my friends own it.
By that argument even the Credit Defaults swaps or junior tranches of subprime mortgages were never in a bubble because no individual investor owned it. "But hedge funds did!" you might say. Yes and they own very very large amounts of Gold at present. So do not believe the hype.
3) Gold cannot go down because none of my friends own it.
An extension of retarded point 2. Pray tell me what prevented it from having severe corrections lasting greater than 6 months on no fewer than 6 occasions in the last decade. I assume even lesser people owned Gold when Bear Stearns collapsed than do now. Yet Gold went down more than 30%.
4) Gold is a store of value.
Not it is not. I have written about it in detail here.
5) Gold can never become a bubble regardless of price.
Not true Einstein. It can.
"The last bull run ended with Gold at $850/oz. That was the ultimate bubble in the price of Gold in USD terms. At that price Jewelry demand was almost annihilated. The price of Gold was atrocious in relation to its inherent demand, price of production and in relation to everything else. Most commodities had become too cheap compared to Gold. So had the Dow!
FOFOA says that Gold can never be in a bubble, however I fail to see what would you call the $850/oz price back then. It had discounted enormous amounts of future inflation and it seemed completely useless compared to 21% interest rates.
If you had put $850 in one ounce of Gold, after storage and transaction costs you would have less than $200 after 20 years. Forget the Dow, if you had bought risk free 20 year Treasuries (back then they certainly were) yielding 20% you would have made over $32,000. 160 fold difference!
That is what an end of the bubble performance looks like. When a risk free asset outperforms a legendary "store of value" by 15000% you know you have been taken to the cleaners!"
Just got done selling the last bit of Gold and Silver. It has been an amazing 6 years with these 2 metals. We have made a cumulative 15X after tax return on these 2 by using futures options, options on stocks and the metals themselves. Under the current circumstances, without Hyperinflation, the highest I see Gold going to is $2500. Under hyperinflation I see other assets outperforming. I rather leave this party early than late. I see a few other places where I can possibly get 20-50X returns risking small amounts of capital. I do not plan to post any more updates in the foreseeable future. Good Luck to all.
17 comments:
You did not miss the political powers behind the yellow metal that A/FOA described, or did you?
I do not generally read his stuff of late. It did read and comment on the one that appeared on Zerohedge and enjoyed getting "junked" in wholesale quantities.
Well, good for you that you took some profits by analyzing markets your ways.
Hopefully for you there will be no paradigm shift anytime soon as it might make your lens appear unable to find the right focus.
You do understand that some (perhaps even most) people buying gold are betting on such a paradigm shift I hope?
I guess we'll have to wait see whether the gold or the paper bugs will turn out right in the end.
Very good point. AS Hugh Hendry likes to say "No one has a monopoly on the future".
I understand Gold Bugs are looking for a paradigm shift.
The only question I want you to think about is are you willing to bet everything that such shift will come?
One more thing,
I have always appreciated input from people, even if I do not agree with them.
The only question I want you to think about is are you willing to bet everything that such shift will come?
Well,
I doubt that it's such a big 'bet'.
We do know that there is a huge oversupply of paper gold when compared to physical.
We do know that the US will never be able to payoff its dollar debts in todays dollars (of current value).
We also know that other countries (e.g. China, Russia, Europe) know that too as they are not stupid (even if we like to think of ourselves as really smart for drawing those conclusions). And we are seeing those countries buying gold.
Also CBs have become net sellers of US treasuries and net buyers of gold.
We also know how oil and gold might be related and we've seen both rise since the birth of the euro, and we know how Europe marks its gold to market.
Finally the downside risks of owning gold do seem rather limited, so all in all I do not really see how owning physical gold in these circumstances is such a big bet.
But once again, I do believe that a transition of power from the US to the rest of the world - most notably China - is over due and I do not think such a transition will leave all current paradigms fully intact.
Hence I do prefer to bet - if that is how one wants to call it - on this transition and in doing so I prefer sailing along with the observable political tide surrounding gold.
And finally one could ask whether you are willing to bet that such a shift won't come.
A lot of good points Martijn. I cannot answer some of them as it reveals about a few trades that I do not want to get into. It is the setting up those markets that is telling me what is next IMO.
Unlike what some who shall not be named believe, owning physical Gold is not risk free. There is always opportunity cost. For me that is paramount.
I think the next move down will be so huge and so swift it will shake a lot of people. Who knows based on where everything else is I may buy it then.
Regarding the graphs, see discussion below that article. While I cannot say that they are perfect (hey who can?)There is enough information gleaned from other web pages that says that they are more accurate the popular opinion.
UnLike my few other transitions, Oil to Gold (2008), Gold to stocks and Silver (2009), this may not work out but one can only do what has worked for him/her and not get caught up in really long passionate speeches.
Under $1050 by April, I am still sticking with it. Yeah that is for real gold you will be able to purchase.
Mad,
Off course one should do what he thinks is best.
And as long as one uses logic and common sense and assess arguments based on their quality rather then their quantity, one does not have to worry about getting caught up in anything.
Corn , Wheat and Soybeans have broken down as I expected in spite of "amazing" fundamentals...(bad crop in Canada...great demand...drought in Russia..weak dollar).
You might be right and we might even see another turn-down in stock-markets as well soon. However, I do not believe that the dollar will eventually remain the world reserve currency, nor do I believe all central banks have become net-buyers of gold to please their girlfriends. And I also do not believe they have become net sellers of US debt to strengthen their friendship ties with Mr. Bernanke.
Hence, I continue to anticipate a change of paradigm on a relatively short time horizon (say two years or so).
But, no need for me to catch you in any long, passionate speeches either, we'll just have to wait and see.
I would not be surprised if all these new buyers of Gold, all these central banks, actually sell Gold as a last resort to reduce their debts.
Should you not have noticed: they print money these days for that.
Lol. Fair enough. Name one country other than Zimbabwe which has done that recently.
Well, Krugman recently said the US will default on (reduce) their debt "one way or another". Either through default or through printing, of which the latter was the "more civilized way".
But I do remember some speak of quantitative easing concerning other countries as well.
So I guess they course has been set quite clearly on reducing (the value of) debts trough money printing instead of default.
Dude,
you went completely retard.
I actually like your stuff before. Maybe you should read more of FOFOA, you might learn a thing or two.
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