GOLD

[ananda77]

But here in NZ, gold was was by far one of the best investments of 2008 with a +40% return in NZD yet was completely ignored. The financial press ignore it because they consider it a strange, speculative investment. To me, speculative wold have been keeping all my assets in NZD.

...you could have had the same return simply being long in USD over the period...

...do not get me wrong, gold is an asset and should therefore be part of a balanced portfolio but other than that I prefer to buy and sell as I see fit...

kind Regards

[Dr_Who]

Can someone please post up the gold price and dow jones graph correlation from 1980-1990?

I want see if there how gold price reacted during the 1987 market crash and if there is a correlation.

Cheers

[peat]

Heres a gold chart covering the '87 crash - which of course now only looks like a blip in the DJI



Dr
the dow chart of the corresponding era bottomed around early 1988 so we can see that Gold did go against DJ trend acting as a safehaven but as we know the DJ didnt stay down like NZ market.

[ananda77]

Can someone please post up the gold price and dow jones graph correlation from 1980-1990?
I want see if there how gold price reacted during the 1987 market crash and if there is a correlation.
Cheers

In Fortune magazine a while back, David Rynecki wrote:

Gold investors are notoriously bad forecasters. From 1985 to 1987, for example, a collapse in the dollar boosted gold 76% and had many metalheads predicting an extended rally. Instead, the price fell 15% the very next year. ... Even bullish gold pros caution the average investor to put no more than 5% of a total portfolio into gold-related holdings and say it's safest to invest through funds

The big picture

In his seminal book Stocks for the Long Run, University of Pennsylvania finance professor Jeremy Siegel revealed what a dollar invested in various things would have grown to, from 1802 to 2001 -- yes, just about 200 years! (Amounts have been adjusted for inflation.)

* Stocks: $599,605
* Bonds: $952
* Bills: $304
* Gold: $0.98

Did you catch that? You would have lost two cents of your dollar in gold -- over 200 years.

...(see attachment) and now we see the CREDIT-(not currency)INFLATION DEFLATING as a result of the death of the whole securitization market; this market provided the BULK OF CREDIT for the last ~25 years and is now DEAD; and for example: another 30 trillion of CDS still in need to be deflated or neutralized

...I think people still think in inflationary (scare) mode and underestimate deflationary forces building unstoppable momentum;

!!read:

Monetize This!: Resolving a Spiraling Public Debt Crisis
How Obama could take a Page from the Fed's Playbook
by Ellen Brown

...But Wouldn’t That Be Inflationary?

The usual objection to funding the government with credits drawn on its own central bank is that the result would be inflationary. However, the scenario most feared today is actually deflation – a lack of available dollars to fuel the economy. Asset values have collapsed, and savings have collapsed along with them. People with only half as much money in their brokerage accounts have less to spend; people whose houses have plummeted in value cannot take out consumer loans against equity as was done in the boom years. Funding a "stimulus" package with existing money that is merely recycled through the banking system as loans will not stimulate the economy but will only add to the problem, by adding to the collective burden to service debt. Money that should have gone into more productive endeavors will wind up going into interest payments. To bolster demand and stimulate production, recovery requires an infusion of new dollars – dollars that can be used to pay wages and salaries, which can then be used to buy goods and services.
http://www.globalresearch.ca/index.p...t=va&aid=12394

Kind Regards

[Aussie]

ananda77, that analysis you posted is so full of holes I hardly know where to begin, so let's just start at the top . . .

In Fortune magazine a while back, David Rynecki wrote:

Gold investors are notoriously bad forecasters. From 1985 to 1987, for example, a collapse in the dollar boosted gold 76% and had many metalheads predicting an extended rally. Instead, the price fell 15% the very next year. ...

Fortune Magazine . . . a truly unbiased source of financial mainstream media. A two year snap shot - very scientific. That temporary gold rally was related to the market crash in October '87. He calls gold investors "metalheads" - does that sound like the author has an even bias . . ?

David Rynecki . . . the same hack who wrote "Deals On The Green: Lessons On Business and Golf From America's Top Executives".

Impressive source!

http://www.amazon.com/s?ie=UTF8&sear...Rynecki&page=1

put no more than 5% of a total portfolio into gold-related holdings and say it's safest to invest through funds

In case you haven't noticed, people who have put their entire life savings in "funds" over the past few years are getting wiped out whereas people who have invested in gold are doing rather well.

In his seminal book Stocks for the Long Run, University of Pennsylvania finance professor Jeremy Siegel revealed what a dollar invested in various things would have grown to, from 1802 to 2001 -- yes, just about 200 years! (Amounts have been adjusted for inflation.)

* Stocks: $599,605
* Bonds: $952
* Bills: $304
* Gold: $0.98

Did you catch that? You would have lost two cents of your dollar in gold -- over 200 years.

OK. Jeremy Siegel. He's written only 2 books in his 42 year career. Taught at University of Chicago, Wharton School of Business and 15 years as head of economics training at JP Morgan . . . since 1988 as academic director of the U.S. Securities Institute, and is currently Senior Investment Strategy Advisor to Wisdom Tree Investments . . . so why would anyone believe research from someone who A) is a Keynsian Economist through and through and B) has a clear vested interest in selling stocks and ETF's (and books on stocks and ETF's). I guarantee you this "Phd" is staring at a bleeding portfolio, still scratching his head wondering how this crisis has come about . . .

Of course he hates gold he's a paper guy and his ridiculous study shows it . . . this is as disingenuous as studies get.

ananda77, are you honestly asking us to believe that ANY study over a 200 year period where 3 out of the 4 asset classes are valued to market and the 4th (gold) is FIXED at US$20.67oz for 131 years, then raised to US$35oz for the following 38 years before finally being allowed to "float" against the other assets for only 30 years is fair and honest? . . . and let's not even talk about Robert Rubin and the US "Strong Dollar Policy" of the 1990's, which was of course to sell and lease central bank gold allowing the US Fed & Treasury to "manage" the price of gold in order to artificially keep US interest rates low while propping up the USD. This is a policy that continues to this day and the evidence for it is overwhelming.

To further destroy the credibility of Siegel's woefully biased analysis, consider how extraordinarily convenient it is that his timeframe ends "just" before the start of gold's current secular bull market in 2002, so gold's 8 year, 4 fold gain is not included, nor is the Dow's 18 month 50% decline!!!

So let me get this straight, the net result of this study is that Stocks, Bonds and Bills are allowed to be worked by the market for 170 years while gold is artificially shackled in the $20-$35 range and you believe this is a credible comparison and a reason not to invest in gold in todays economic environment?

_____________________________________________

Now let's look at some REAL facts . . .

Starting with the value of the USD since 1792 . . . of which it has lost 96%! A picture does say a thousand words.

Attachment 1275

Next a comparison between the DJIA and gold from 1971 till present.

1971 DJIA (937-7365) = 786% gain
1971 Gold (35-995)= 2,842%

I know which one I prefer.

The following chart shows the DJIA priced in gold ounces.

Attachment 1274

Note that it is only charted through October '08 at 13 ounces. A current chart would show the Gold/Dow ratio at a stunning 7.365 ounces that's a whopping 40%+ drop in 6 months - and with a surging US dollar to boot! This chart will drop through the floor when the USD starts actually falling.

How are those stock values looking now when valued in real money?

...I think people still think in inflationary (scare) mode and underestimate deflationary forces building unstoppable momentum;

Deflationary forces are winning for now, but in the near future a change will come. Do not forget that the $Trillions that have been pumped into global banks have so far not been loaned ie: they have not been multiplied many times over by the magic of fractional reserve banking at the retail level.

Money is now slowly gaining more purchasing power over economic goods. That won’t last. The period of devaluing sales is likely to ebb by mid summer in the US. It will ebb with the arrival of a lesser stream of consumer goods because fewer factories are still producing them. With a falling increase in imports of consumer goods, the increased scarcity will then lead to higher prices. Do we think that $30 oil is here to stay with production decreasing, wells being capped, cap ex drying up and exploration shelved . . . I don't think so.

Do not be deceived, rabid inflation is coming.

[patsy]

Siegel's study does not provide any information not already known. For starters, it confirms gold's property as a hedge against inflation. Siegel's study shows that a holder of gold would not have his/her wealth eroded. On the other hand, Siegel's study confirms that owning stocks is the best strategy for increasing wealth.

The problem with Siegel's study is that it shows end-to-end results. A more enlightening study would be to break down the performance of each asset category within inflationary and deflationary periods. For example, during the decade 1970 to 1978, in which Australia suffered one of the most severe and lengthy inflationary periods, the Australian sharemarket returned exactly 0%, whereas inflation grew at a rate of 12% compounded per annum.

The key question is, given that we all have a finite investment horizon (e.g., because of age or retirement approaching, etc.), what is the best asset allocation during an inflationary period?

During high inflationary periods, stocks do not perform well - full stop. In fact, stocks and inflation are not correlated at all, but gold and short-term bonds are, and these are the two best ways of protecting wealth during that period. If an investor has an investment horizon of 40+ years, then the investor can ride out inflationary and deflationary periods with a single investment strategy (i.e, owning stocks) and Siegel's study is a good reference. However, if we have a limited time horizon then the asset allocation should respond to the period we are going through.

Incidentally, someone at the office pointed me to the following study, which makes a lot of sense:

http://madmoneymachine.com/2009/02/1...times-to-come/

[Aussie]

All really good points Patsy. I'm certainly not someone is against stocks, in fact I own quite a few and I'm not "in love" with gold as an asset class, I just appreciate it for what is does at certain times. And now is one of those times.

I just get annoyed with slanted research that is not relevant to the current climate and clearly is presented by an author with an agenda - to sell books and sell stocks. Brokers do not like gold as there is no "churn", no ongoing kickbacks or commissions . . .

I would agree that anyone who bought gold in 1980 and held through to 2001 would have been foolish. They would have missed one of histories greatest bull markets in stocks. I just try and be practical and invest within what I see as major trends.

I will be quite happy to sell my gold assets at what I consider to be the appropriate time. I don't want to be holding on to any long-term doorstops

[Aussie]

...you could have had the same return simply being long in USD over the period...

...do not get me wrong, gold is an asset and should therefore be part of a balanced portfolio but other than that I prefer to buy and sell as I see fit...

kind Regards

ananda77, what you say is essentially true. However, I chose to purchase gold assets at cheaper prices over the past few years whereas if I was still in USD cash at the moment, I'd be paying a lot more to acquire what I have.

So I see it currently as being a plus-plus as gold has risen in value as the USD has risen also.

Cheers

[ananda77]

The key question is, given that we all have a finite investment horizon (e.g., because of age or retirement approaching, etc.), what is the best asset allocation during an inflationary period?

...during an inflationary period I would like to be increasingly long gold for sure but the whole argument is that we are not in an inflationary period but -IT IS DEFLATION- and therefore I understand, the current rise in gold is FEAR based and that, potentially, makes for extreme volatility

...and hopefully, if we are fortunate enough, we will all be spared the time when gold may go to new highs correlating to new highs in fear as a result of a worldwide complete collapse of any political, social, and economic structure

Aussie: read this again very carefully>

Monetize This!: Resolving a Spiraling Public Debt Crisis
How Obama could take a Page from the Fed's Playbook
by Ellen Brown
http://www.globalresearch.ca/index.p...t=va&aid=12394

Kind Regards

[patsy]

...during an inflationary period I would like to be increasingly long gold for sure but the whole argument is that we are not in an inflationary period but -IT IS DEFLATION- and therefore I understand, the current rise in gold is FEAR based and that, potentially, makes for extreme volatility

Price increases are the RESULT of inflation, not the DRIVER of inflation. Inflation is driven by an increase in money supply. When you're referring to deflation, I suspect that you are referring to asset deflation, which is currently caused by de-leveraging.

The best way to assess whether inflation is/isn't a threat is by looking at the growth in M3 (currently 16% in Australia) or by looking at the US Fed's balance sheet, which also shows a massive increase.

I agree that gold prices reflect fear and inflation expectations. I gather that your argument is that "inflation expectations" are wrong... but, again, no matter where you look, money is being created out of thin air everywhere, whether USA, Australia, NZ, China.... and that's what drives inflation REGARDLESS of expectations. The comment below shows just a starting point:


---------------------------------
Thursday, February 19, 2009
Wholesale Inflation Takes Biggest Jump in 6 Months
Lauren Covello and Ken Sweet
FOXBusiness

Inflation Hand

After two straight months of declines, the index that measures inflation at the wholesale level surged by an unexpected 0.8% in January. The U.S. Labor Department said Thursday that producer prices jumped last month as increases in oil and energy prices led to higher costs for manufacturers. The rise -- which represents the biggest increase the index has seen in six months -- was slightly more than what economists were looking for, as they expected producer prices to rise 0.3% for the month.

The results follow two months of declines in the index. In December, the producer price index fell by 1.9% and in November, by 2.5%.The Labor Department’s “core” reading on wholesale inflation, which strips out volatile food and energy costs, showed that prices rose 0.4% during the month -- much more than the 0.1% that economists were looking for.

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By the way, I'm no gold bug and I seriously fear a significant correction in the price of gold. I don't know if the price of gold is commensurate with the increase in money supply but I'd argue that inflationary times are just ahead of us.