Gold will clearly crash at some point… but the question is when, and with how much warning. One way to do risk control is just to have some kind of trailing stop, presumably linked to volatility. So something like a four standard deviation trailing stop based on daily volatility might do that. Then reduce your position size so that your portfolio doesn’t take an unacceptable hit if that stop is actually triggered. Of course, if it crashes in a flash-crash kind of way, you’re screwed, but gold isn’t the only thing that does that, and a smaller position size can help you control that. But I don’t see gold entering a long term trend downwards until the fear of major economies inflating their currencies deliberately or suffering from out-of-control inflation passes. We should have some warning about that and therefore time to reduce our positions. If you are not obsessed with getting the absolute top price, and simply getting a “good” price, it’s easier to pull the trigger on that decision. That doesn’t mean it can’t get quite volatile, and have big drops in the interim, but if your investment thesis is about fiat currency stuff, then you shouldn’t care too much about the volatility - you just reduce your position size and consider yourself extra lucky if you end up selling at a technical high point.
I’m more interested in putting on a short position in GLD when I feel the time is right. An incredibly amount of money could be made for those who get short anywhere near the top. Chadwick, do you have any notion as to what level might be a topping point? Or are you just riding the wave at the moment?
When you’re breaking near new highs on something that is reacting to fundamentals (other economies and fiat currencies) but doesn’t really have its own clear fundamental measure, there’s not much one can do but ride the wave. I think that there are likely to be resistance levels at round numbers, like $1900 and $2000, etc., even multiples of past support levels, etc… These are just focal points that make people start to think “maybe I should take some profits (or short) now,” and that becomes a self-fulfilling prophecy. I even think that Fibonacci numbers are not necessarily completely crazy, although I don’t really practice them myself. Fibonacci numbers crop up enough in nature and fractals, like ferns unfolding and conch shells, etc… I can easily imagine our brains doing something funky and qualitatively different when you get Fibonacci multiples of dopamine getting squirted out, so that people feel might twice the urge to take a profit at 63% up as compared to 61% up, because the golden ratio is 1.618. I don’t have proof that this is what happens, but I can imagine a biologically sound causal mechanism that would make these numbers something more than pure mysticism. For me, what’s driving the price is fear and mistrust of governments. Until that abates, there’s no reason to get out or short the position, although one might adjust sizes in reaction to volatility.
bchadwick Wrote: ------------------------------------------------------- > Gold will clearly crash at some point… but the > question is when, and with how much warning. You still don’t get it.
Sweep the Leg Wrote: ------------------------------------------------------- > bchadwick Wrote: > -------------------------------------------------- > ----- > > Gold will clearly crash at some point… but > the > > question is when, and with how much warning. > > You still don’t get it. Get what? Chadwick is one of the best posters on this site. If someone doesn’t get it, its you.
I’ve never really understood the whole fiat money argument for investing in gold. Like, why gold? There’s no inherent relationship between gold and the level of paper $$ the Fed keeps churning out - people say there is but that’s only because they’re all out there making it happen by buying gold. 10 outta 10 for a self-fulfilling prophecy. Why not copper, or saffron or diamonds? If you’re worred about the damage being done to fiat currencies, why aren’t you stashing copper slabs under your bed or platinum bars in your cupboard? There’s nothing special about gold except for the fact it was used as a currency at some stage - but as I said in an earlier post, so were cowrie shells, beads and barley. And if you’re buying gold because you want to have something to trade with when society completely collapses, well like everyone says, you’re going to be far better off with guns, ammo and land. Anyway, don’t mean to stir up the goldbugs, I know you fellas can be crazier than a ten-legged bull.
ManMythLegend Wrote: ------------------------------------------------------- > Sweep the Leg Wrote: > -------------------------------------------------- > ----- > > bchadwick Wrote: > > > -------------------------------------------------- > > > ----- > > > Gold will clearly crash at some point… but > > the > > > question is when, and with how much warning. > > > > You still don’t get it. > > Get what? Chadwick is one of the best posters on > this site. If someone doesn’t get it, its you. That’s so cute. My point, perhaps made a bit too concise, is that you can’t evaluate gold like a stock or even other commodities. Until you recognize that, you won’t be able to accurately examine the PM market. It’s takes…creativity. The same skill set used to analyze something like, say, AAPL, will get you murdered in gold and silver. Forget about the whole doomsday scenarios. Just remember that since the Fed was established, the dollar has lost 91% of its value. That’s why gold is important. You don’t need to figure out the fundamentals. Just make a case for the dollar to appreciate. If you can, then you don’t like gold.
I was hoping for a hint as to what I was not getting. I have been so bullish on gold for most of the past few years that I thought it was interesting to see that the first time I post something that says “Gold can go down dramatically some day,” I get told that “I just don’t get it.”. (BTW, since ones emotional state doesn’t transmit well in text, let me clarify that I wasn’t upset by your comment, just a little confused as to what I wasn’t getting) I think it will be a long time before people feel as comfortable storing value in US Treasury securities and European equivalents as they did in the last two decades. While this discomfort / mistrust increases, so will the price of gold. And I think it will continue for a long time. In this, I think STL and I are on the same page. But at some point, the USD will stop going down. I don’t know when; probably many years from now. When that happens, there will be a lot of people thinking that “gold never goes down for more than a bit… Always buy on dips, because the long term trend is forever.”. Thats when you will get a bubble like collapse. It’s probably a ways away, but that’s why I said that there will eventually be a crash in gold. Something that doesn’t have clear fundamentals like a company or even an industrial commodity like silver is hard to value in things like “target price” terms. All you can really look at is whether the pressures are likely to keep pushing it higher, lower, or just ease off. The other thing to consider when saying that the USD has lost 90% of it’s purchasing power and therefore gold is great, is that gold is not the only alternative to holding currency. Stocks have delivered substantially more than 10x a return in real figures, so maybe one should be in stocks instead of gold in a declining USD environment.
What would happen to the price of gold if the US decided to put the USD back on the gold reserve?
ManMythLegend Wrote: ------------------------------------------------------- > What would happen to the price of gold if the US > decided to put the USD back on the gold reserve? Is there enough gold in the world to back the number of US dollars? I’m just curious because that was one of the reasons why it went off the standard – not enough gold to support the number of US dollars. Perhaps it would be possible to just set x # of dolalrs equal to the price of y pounds of gold without backing it with gold itself.
newsuper Wrote: ------------------------------------------------------- > I’ve never really understood the whole fiat money > argument for investing in gold. Like, why gold? > There’s no inherent relationship between gold and > the level of paper $$ the Fed keeps churning out - > people say there is but that’s only because > they’re all out there making it happen by buying > gold. 10 outta 10 for a self-fulfilling prophecy. > > Why not copper, or saffron or diamonds? If you’re > worred about the damage being done to fiat > currencies, why aren’t you stashing copper slabs > under your bed or platinum bars in your cupboard? > There’s nothing special about gold except for the > fact it was used as a currency at some stage - but > as I said in an earlier post, so were cowrie > shells, beads and barley. > > And if you’re buying gold because you want to have > something to trade with when society completely > collapses, well like everyone says, you’re going > to be far better off with guns, ammo and land. > ++++++1 The mythological argument for a gold backed currency is that gold can’t be devalued and “every empire that devalues its currency collapses”. Problem is, they are devalued because currencies need to be continually devalued over time, and a gold backed system would be untenable and eventually switched out of.
Yes, part of the problem with a gold-backed currency is that it tends to be deflationary. People often say that inflation is too much money chasing to few goods. Well, deflation is too many good chasing too little money. Think that’s not a problem? As the economy gets more productive, you have more goods. If you are on the gold standard, you basically have a fixed amount of money, unless you can dig more up, or buy/conquer gold from other countries. Globally, you can’t grow the money supply faster than the ability mine more gold or melt down jewelry, neither of which is something one can do rapidly. It’s not really a problem as long as the economy doesn’t grow, but what happens if you do get growing economies and a gold standard? Under a gold standard, hanging on to gold is often a better investment than putting it into businesses, because gold is essentially a fixed quantity, whereas productivity is likely to improve. Obviously some businesses will be profitable enough to merit investment, but many will not, because capital will depreciate faster, and the price of new products will tend to drop over time. The longer you hang on to gold, the more stuff you can hope to purchase with it. Ultimately that depresses investment, employment, and the general standard of living. Gold standards and currency boards are sensible things to reassure investors after a central bank has been blatantly irresponsible, but there are serious costs. In general, you want to grow the money supply in line with the increases in potential GDP, and perhaps a little faster, given that mild inflation is much more manageable than mild deflation.
99 cannon sloop Wrote: ------------------------------------------------------- > ManMythLegend Wrote: > -------------------------------------------------- > ----- > > What would happen to the price of gold if the > US > > decided to put the USD back on the gold > reserve? > > Is there enough gold in the world to back the > number of US dollars? I’m just curious because > that was one of the reasons why it went off the > standard – not enough gold to support the number > of US dollars. Perhaps it would be possible to > just set x # of dolalrs equal to the price of y > pounds of gold without backing it with gold > itself. You’d need to peg gold around $7,000/oz to make it work with the current level of money out there. @bchad - I was a little short last night because the Chiefs played like ass. But, I do take issue with your comment that gold will “clearly crash at some point.” You’re implying it’s a bubble right now. Generally speaking, you and I are on the same page when it comes to gold and the reason to invest in it. So, I’m not sure how you could even remotely think this it’s a bubble. My thesis on gold primarily has to do with countries building their reserves, fiat crap, and, to a lesser extent, economic uncertainty. There will be a time when these things get worked out, and when that happens I’ll get bearish on gold. Obviously it won’t go straight up, but I think two years from now it’ll be higher.
Sweep the Leg Wrote: ------------------------------------------------------- > 99 cannon sloop Wrote: > -------------------------------------------------- > ----- > > ManMythLegend Wrote: > > > -------------------------------------------------- > > > ----- > > > What would happen to the price of gold if the > > US > > > decided to put the USD back on the gold > > reserve? > > > > Is there enough gold in the world to back the > > number of US dollars? I’m just curious because > > that was one of the reasons why it went off the > > standard – not enough gold to support the > number > > of US dollars. Perhaps it would be possible to > > just set x # of dolalrs equal to the price of y > > pounds of gold without backing it with gold > > itself. > > You’d need to peg gold around $7,000/oz to make it > work with the current level of money out there. > > @bchad - I was a little short last night because > the Chiefs played like ass. But, I do take issue > with your comment that gold will “clearly crash at > some point.” You’re implying it’s a bubble right > now. Generally speaking, you and I are on the > same page when it comes to gold and the reason to > invest in it. So, I’m not sure how you could even > remotely think this it’s a bubble. > > My thesis on gold primarily has to do with > countries building their reserves, fiat crap, and, > to a lesser extent, economic uncertainty. There > will be a time when these things get worked out, > and when that happens I’ll get bearish on gold. > Obviously it won’t go straight up, but I think two > years from now it’ll be higher. I agree with you that two years from now it will be higher. But it will crash at some point like bchad said. Nothing, NOTHING, goes up forever.
ManMythLegend Wrote: ------------------------------------------------------- > I agree with you that two years from now it will > be higher. But it will crash at some point like > bchad said. Nothing, NOTHING, goes up forever. What about real estate? Oh wait.
Sweep the Leg Wrote: ------------------------------------------------------- > ManMythLegend Wrote: > -------------------------------------------------- > ----- > > I agree with you that two years from now it > will > > be higher. But it will crash at some point > like > > bchad said. Nothing, NOTHING, goes up forever. > > What about real estate? Oh wait. Umm what? Real Estate just went through a crash. Like I said, nothing goes up forever.
ManMythLegend Wrote: ------------------------------------------------------- > Sweep the Leg Wrote: > -------------------------------------------------- > ----- > > ManMythLegend Wrote: > > > -------------------------------------------------- > > > ----- > > > I agree with you that two years from now it > > will > > > be higher. But it will crash at some point > > like > > > bchad said. Nothing, NOTHING, goes up > forever. > > > > What about real estate? Oh wait. > > Umm what? Real Estate just went through a crash. > Like I said, nothing goes up forever. No way!
Sweep the Leg Wrote: ------------------------------------------------------- > ManMythLegend Wrote: > -------------------------------------------------- > ----- > > Sweep the Leg Wrote: > > > -------------------------------------------------- > > > ----- > > > ManMythLegend Wrote: > > > > > > -------------------------------------------------- > > > > > > ----- > > > > I agree with you that two years from now it > > > will > > > > be higher. But it will crash at some point > > > like > > > > bchad said. Nothing, NOTHING, goes up > > forever. > > > > > > What about real estate? Oh wait. > > > > Umm what? Real Estate just went through a > crash. > > Like I said, nothing goes up forever. > > No way! Tool!
What? Obviously I was completely serious.
Great thread. I’ve started using the tulip analogy myself. Can you imagine how dumb advisors looked during the tulip bubble? Advisor: “But look, it’s a TULIP, you can’t DO anything with it. You are just hoping the next guy really likes tulips even more than you do.” Client: “I like it it’s pretty. Also it is uncorrelated with everything else in my portfolio. You’re fired.” Gold is like religion, you either believe in it or your don’t. ETFs have made it a LOT easier to believe in the past decade, and converts are way up.