I was wondering when the thread would pop back up. Yes, I am buying, silver though. Bought yesterday and buying more today. This is the definition of BTFD.
I’ve lost about 10k on paper on call options which I bought in case our currencies got destroyed. I’ve been long the dollar and short the market. The bet on gold was bet that I wanted to be wrong about. So I got my wish there so far. Now, I’m thinking about buying the physical. Looks like everyone is dumping their gold for liquidity. Not sure how much more dumping can go on, but I’d bet we could see more. I’ll wait until Greece defaults for that though. I hate, hate, hate, gold because I do not understand it.
It’s a factor of a few things…The need for liquidity, oil dropping lowering inflation fears, and the dollar surging.
It’s a house of cards STL, get out while you still can.
And go where? These are aren’t short term trades I’m making. This is a 5-10 year investment. I still see no better place to go. Maybe I should go into BAC?
I’m thinking of buying BAC call options, any opinions?
Bump - down to 1630 today. Do you guys stop out at this point or double down?
I have an order in to buy more if it drops another ~5%. Once again, nothing’s changed long term. Just another great opportunity to BTFD. Short term there are a few considerations, namely Europe. A surging USD is obviously bad for gold, but I don’t know of anyone anywhere that believes that’s going to be a long term trend. Ultimately any feasible outcome in Europe is good for gold. Meanwhile, the need for liquidity provides a good entry point for those that may have missed the boat.
I don’t believe that surging USD is going to be a long-term trend but I don’t think that’s the point. The USD could do a lot of short-term surging and do a lot of short-term damage to a gold position. Then you have to deal with margin calls and whatnot… The vol on gold is so high right now, why take a position? I personally think that Europe is going to disintegrate, reintroduce legacy currencies, have them depreciated to nothing and I am going to buy myself some Greek islands. In between here and there we will have global recession and your gold is going to get creamed.
Um, right. That’s what I said - USD goes up, gold goes down. It’s a short term issue that can provide buying opportunities. If you plan on being invested in gold for several years, USD strengthening isn’t a concern. I’m not sure why you’d buy on margin though. One of the best aspects of buying gold - of course I’m talking about the physical - is there’s no counterparty. Screw the comex and their margin hikes anyway.
That’s a very odd way of looking at gold. You’re worried about political instability and currency depreciation and you don’t like gold? That’s basically the reason people buy gold. As for recession fears, it’s fair to say we’ve been in a global recession for a few years now right? Since gold derives essentially none of its value from industrial use, I’m not sure why you’re concerned about global economic output. Deflation concerns maybe? Deflation in the US means more QE so that’s a positive for gold. And, you’re obviously not worried about deflation in Europe. Nope, can’t figure out where you’re coming from here. But why take my word for it? Let’s take a look at how gold’s done vs stocks and bonds since, oh say 9/15/2008. http://finance.yahoo.com/echarts?s=GLD+Interactive#symbol=gld;range=20080915,20111212;compare=spy+bnd;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=; I’m not suggesting gold is going to be the best short-term play, but none of the factors that have driven the price up have reversed…they’re getting more profound actually.
“I’m not suggesting gold is going to be the best short-term play, but none of the factors that have driven the price up have reversed…they’re getting more profound actually.” “When the facts change I change my beliefs. What do you do sir?” -John M. Keynes
Joey does a lot of stuff with futures, IIRC, so margin calls on gold futures can come in, often at inconvenient times. However, if you do your position sizing or money management right, there will presumably be stuff available to cover them. The problem would come if you have overleveraged, so that you are getting multiple margin calls on multiple futures contracts, but this is - I think - a portfolio construction problem more than an asset selection problem. As for me, I’ve trimmed my gold position because I think the politics of printing has changed and because the volatility has gone up, but I’m holding on to the rest of my position for now. Joey, what are you going to be buying your Greek islands with, exactly? I’m not saying gold is guaranteed to store value better than USD, but doesn’t it make sense to diversify out of assets with a long-term expected loss?
I don’t get the thinking behind these kinds of estimates at all. So the thinking starts out “We have an unsustainable amount of debt and appetite for more debt. That means we have to expand, default or inflate. Nobody is going to default if they can inflate and we just can’t get that level of economic growth so the logical consequence is inflation” (I’m completely on board to this point, but then…) “so gold is going to be $5000/oz”. First off, we have had fairly low inflation over the last 5 years - like 4% or less - and gold has gone up in value by a factor of 5. Gold prices have already accommodated a ton of inflation that didn’t happen. Then we expect gold to go up by another factor of 3 from here? It might happen but it will have nothing to do with inflation. The serious danger in the short to middle term is surely not USD inflation. The crisis in Europe is very deflationary. The Fed is sitting on an enormous pile of assets to fight inflation. In fact, in my lifetime the Fed has never been better prepared to fight inflation than now. Quantitative easing was really good for gold - dump a bunch of investable money into the economy and lacking good substitutes much of it found its way to gold. I will be very disappointed if the Fed does another round of QE. It doesn’t work anymore and it just gives us asset bubbles. There are dark horses out there for gold, like I keep waiting for China to decide that they would really like to trade in their US treasuries for a few thousand tons of it. In general, I think you should just stay away from gold for at least the next few months. Then if you’re going to buy it, think of a better argument than inflation and work on your math.
Greek islands are going to be denominated in drachma. I will be able to trade practically any real asset or real currency in the world for anything denominated in drachma. The Parthenon, for example. I’m stunned by this “out of assets with long-term expected loss”. I don’t know what you mean by "long-term’ here, but gold is the poster child asset for long-term loss. The Internet gold sites are all pleased to point out that gold is a store of value - in Cleopatra’s time you could trade an ounce of gold for a fine suit of clothes and in 2011 you can still trade an ounce of gold for a fine suit of clothes. Menawhile, if you bought an ounce of gold in Cleopatra’s time, you could finance, insure, and store it for 2000 years. If you bought and rolled claims on production of goods and services since Cleopatra’s time you averaged, say, 3% real returns and can buy bajillions of suits of clothes now. In the long-term, you are way better off buying equities than gold. There is almost no chance that gold outperforms the S&P over the next 20 years and zero chance that it does over the next 35 years. Betting on gold is betting on financial disaster - something that all the smart people in the wworld don’t want to have happen. It happens in the short-term throughout history (gold sites love to talk about how well you could do with gold during the Weimar hyperinflation as if that is relevant). It doesn’t happen over the long-term. And yes, I would only buy gold through futures contracts or through a futures based ETF because of my tax situation, my lack of faith in gold as a long-term investment, my complete faith in Interactive Brokers not to behave like MF Global (but I keep thinking I should re-evaluate that last one).
I think the $5000 figure comes out by looking at the liabilities on the Fed’s balance sheet and dividing it by the tons of gold in US possession. The idea being that if the US switched to a gold standard today and did not simultaneously devalue, that’s where gold would need to be set. It’s not a watertight argument, by any means, since the US is not the only central bank that matters (even if it is arguably the most important one), and a new gold standard probably would be accompanied by a devaluation, but it is more than just a finger in the air estimate. For me, I just see central banks gradually switching out of USD and EUR and into something reservable that cannot be devalued by fiat. This would be mostly a gradual process of changing the asset mix over time, punctuated by occasional big blips when some central bank gets on board or another one tries to dump or raise a lot at once.
I’m not arguing for a holding period of 2000 years Joey. But there are times when the world is more politically unstable than others, and during those periods, the dominant currency has to have a higher discounted value to reflect the fact that it might not be useful or as useful in the future. For the USD, the main risk for holders of USD assets is the risk of having the fed let it devalue (with inflation or not). There are relatively few other alternatives. Almost nothing is liquid enough, save the Euro and the Yen, neither of which look much better. So there is this shiny metal that’s worked as a medium for thousands of years, and until things get better, that metal is going to be more attractive. One day, things will get better. Maybe the Chinese will take us over and run us efficiently and manage to undo all the labor and environmental regulations that are putting job-creators out of business (said with tongue-in-cheek). And then maybe they make the CNY freely convertible, and then gold goes down, because we’re in for the Pax Sininica. But until we’re on a path out of crisis, it makes sense to have some more gold in one’s portfolio than in normal, safe times. Besides, what asset doesn’t go to zero at some point during the last 2000 years? Over that time period, stock markets go to zero, countries disappear, bonds default. Real estate gets robbed as Romans, Vandals, Huns, Magyars, Vikings, Mongols, French, Nazis, etc. invade. A few gold coins might actually store value better than anything else over that time period, because it doesn’t depend on the credibility of political or economic institutions, and you have a chance of hiding it away from invaders. The only other asset that might work is land, provided that you can retain title to it.
Well, you know if we are going to do calculations like that, how about this one: There are $61T worth of bank deposits in the world and $2T worth of gold. Since the only sensible thing to do is to switch to a gold standard then gold ought to be $50,000/oz just to handle the bank deposits. Of course, then all the productive people in the world will start sifting beach sand for gold because it pays better than their regular job. Unfortunately for the metal standard guys, we don’t really want to divert huge resources in society to mining simply so we can say that the money is backed by the huge resources we have devoted to backing the money. Fiat currencies work even if they have problems. The gold standard had lots of problems too.
I am definitely not arguing for 2000 year time tables - only pointing out that when you do “long-term” arguments they better work in the real long-term. Holding gold for very long periods of time (like thousands of years) has the same problems with holding anything else over that length of time - govts confiscate it or your earnings on it. There isn’t really a great solution to this problem exceept to diversify the location of your holdings. This is that very long-term estate planning of the kind that Rothschild did - even moving his children to different continents so govts couldn’t “confiscate” all of them. Anyway, holding gold into a deflationary crisis is a bad idea. If you were Greek, holding gold is a good idea. If you can hold USD, its a bad idea…
I’m trying to think through the logic of that, which seems to be “if you have an inflationary crisis, gold is a good thing to hold; therefore, if you have a deflationary crisis, gold is a bad thing to hold.” But I’m not so sure that this logic works. In a deflationary situation, you want to hold money, because money will purchase more over time because of deflation. If you think of gold as a commodity, like wheat or copper, then it’s better to have fiat money than gold. But if you think of gold as money, then holding gold is more or less like holding paper currency. The main historical examples of deflation in the US are the long depression of the 1870s and the great depression of the 1930s. Both times, the US was on the gold standard, and so it’s hard to tell what would have happened to gold in a free floating regime. The US Devalued in 1933 (I might be off by a year there) and later made it illegal to own gold, so yeah, that was a bad thing, but mostly because gold was effectively confiscated at undervalued prices, which would suggest that internationally, it was more valuable.
The 1870’s is actually an excellent example. If you look at deflation during that period, the more it looked like labor the less it deflated. For example, if you wanted to buy fine furniture for your house its price rose during the 1870’s. If you wanted to buy anything that was commodity, its price dropped. In lots of ways, gold is the ultimate dumb commodity. The labor to produce it might have been expended 3000 years ago. Anyway, the notion that gold can switch roles when you we move from inflation to deflation doesn’t work for me at all. It’s the anti-USD in inflation but it’s the substitute USD in deflation? C’mon…