Gold

[BIRMANBOY]

He can recover it with the skin being shed by all the countless suckers who bought on the way up to $2000

SKOL I try to keep up with your trumpeting ( which has been dribbling on for about 4 years).
In that time you have been beating a drum about the gold price is going to crash.
You seem very quick to pat yourself on the back if gold moves down but since you have been scorning gold it is up 45% and has been up as high as 90%.

SURELY YOUR DRUM MUST BE WEARING OUT BY NOW.

[Daytr]

Morning all. Skol, I never read KWN or Zerohedge. Not saying its a conspiracy I just don't believe the numbers accurately reflect the real cost of living. Just go shopping as one guy on HC said, or as I like to say, look back at your power bill. Halebop, in regards the cost of gadgets i.e. technology agree they come down in price as they are refined or become 'dated', however what is not included is replacement cost. i.e. previously people didn't need to update their phone or laptop, tv every couple of years & this adds to the cost of living, but its not taken into account. Same could be said for cars to a lesser extent. Things are becoming more 'disposable'. What's your thoughts on that Halebop? Maybe its just what I consume has gone up dramatically in the last 10 years, but I don't think so. Anyone else dispute their cost of living has gone up at least twice what the official figures say? I recon inflation is running north of 5% pa & I think that's conservative.

[Halebop]

Halebop, in regards the cost of gadgets i.e. technology agree they come down in price as they are refined or become 'dated', however what is not included is replacement cost. i.e. previously people didn't need to update their phone or laptop, tv every couple of years & this adds to the cost of living, but its not taken into account. Same could be said for cars to a lesser extent. Things are becoming more 'disposable'. What's your thoughts on that Halebop? Maybe its just what I consume has gone up dramatically in the last 10 years, but I don't think so. Anyone else dispute their cost of living has gone up at least twice what the official figures say? I recon inflation is running north of 5% pa & I think that's conservative.

Would certainly agree that many companies have got better at building redundency into their product cycles.

My Dad now owns a flat screen TV. His first colour TV about 40 years ago was a Sanyo in a giant wooden box. It was only a few hundred dollars but both in his mind and I suspect in real disposable income terms it was the most expensive TV he ever purchased. 20+ years later he bought a larger CRT screen for $2,500. The more recent Samsung LCD screen was sub $1,000. If he gets 10 years out of it (and his buying history says he will probably die before he buys his next TV) then it hasn't got more expensive. Maybe the real difference re "disposable" is demographics and the power of marketing?

In the inflation context I think consumption is a key trigger but it doesn't really matter why someone consumes. If I have $50,000 to spend then it's my choice to replace my smart phone every year or not or buy cheese instead and the index doesn't care why I choose to do either. For me the problem is the smart phone/TV etc portions of the index reflects some concept of average and not what everyone is individually doing. I have a 2nd hand Galaxy S1 gifted to me so neither smart phone replacement cycles nor smart phone inflation/deflation registers high on my consciousness yet a portion of the CPI numbers that I do subconsciously build into my financial decisions will reflect the many people who do buy them more regularly.

Anyone buying a house in Auckland would certainly understand where inflation is higher than 5% though!

[Skol]

Daytr,

If you are a well-informed ex-bankster then I would have thought that Japanese shares were the way to go, a contrarian play I've been accumulating for 17 years that is like my own personal printing press atm, instead you are trying to cajole punters into an asset allocation that has had the mother of all runs, gold and silver. It's all over there buddy, there's too many walking wounded. I've spent a lot of time in Japan and wouldn't be at all surprised to see it eclipse China to become the second biggest economy in the world again.

[JBmurc]

Aaaah, no, I got into the debate when gold was $1100, so it's up 22%, not 45%.
Gold has been a suckers bubble, now deflating, and in fact it crashed about a month ago, but the crash isn't over yet, last time there was a major gold crash it declined for 20 years, probably going to be the same this time.

I have been warning for years about the danger of over-allocation to a useless yellow metal, and this is the consequence for one institution. I remember when they bought.

http://online.wsj.com/article/SB1000...trending_now_5

US$300,000,000 - ouch. Such idiots should get the sack!

I'm sure we were debating Gold pre- $1000oz ....I've been bullish since $600-700oz....If it wasn't you might have been someone else ...always laugh at the guys that gave me a hard time on OIL going past $40bbl they said it was a bubble ...the world couldn't survive with it so high ....now the fact is if oil even got close to those old highs half of the world producers would be out of business ....the same is happening to the Precious metals producers.... discovery Grades are reducing costs are rising ....but populations of new buyers are rising in the east the last boom bust of silver/gold was driven by only the western world ...

[Skol]

JB,
Too much KWN-the transfer of gold from West to East is a myth perpetrated by by the goldbug press. There has been some buying but it's mostly by a bunch of unsophisticated older chinese women referred to as 'aunties', get on board with them if you so desire.
=================
On Sunday afternoon, a microblogger in Beijing logged into Sina Weibo, China’s leading social media platform, to gossip about the “auntie” next door. It’s a broad term of respect for an older woman, and his followers understood precisely what he meant when he tweeted, “The auntie next door used all of her retirement savings to buy gold. When asked what she’d do if prices keep dropping, she replied that if everyone kept buying gold, the price wouldn’t drop.
=================

There's also this from today's USA Today.

===========================

http://www.usatoday.com/story/money/...goner/2355939/

[Skol]

The Texas Chainsaw Massacre - from Investing Decoded.

May

25
Losses in a worthless asset
Anybody from the State of Texas will most likely be able to tell you the story surrounding the horrible Battle of the Alamo. It was a horrible day for Texas, as all of the Alamo's defenders died to General Santa Ana. This battle was so gruesome, that kids still learn about it in history classes today.

Another bloodbath is taking place in Texas today, although (fortunately) this bloodbath is only on paper. Sadly enough, those involved don't even see the massacre happening and are more than willing to let it continue.

This modern day massacre is the losses taking hold in the University of Texas' Endowment.

As reported in this weeks Wall Street Journal, "Gold's slump has saddled the second-largest U.S. college endowment with more than $300 million in paper losses." The WSJ continues, "The organization holds about $1.1 billion of gold-related investments, down from about $1.4 billion before gold began heading south last October."

$1.1 billion invested in Gold.

Why would an organization pile so much money into an asset with no intrinsic value?

Bruce Zimmerman, the endowment's CEO explains, "Gold is a hedge, and it still fills that role."

I would love to analyze the hard numbers that Mr. Zimmerman has, because Gold certainly does not look like a hedge to me.

Investors buying gold often do so because of 3 principal reasons. The first reason is because of inflation. The second reason is because of the Federal Reserve and it's aggressive polity of monetary easing. The third reason is that it's a hedge on the stock market (IE, at the next recession, gold will increase/retain it's value while stocks decline).

All 3 of these reasons are fundamentally flawed, as I will explain below.

Inflation does have an impact on gold, but only to a certain degree... Given the monumental run in the price of gold, any future inflation is already priced into the metal, meaning investors buying the metal today will experience negative real returns in the future.

To reach this conclusion about inflation, I analyzed the price action in Gold from 12/1/04 to 4/1/13 , relative to the Consumer Price Index (CPI).

Between 12/1/04 and 4/1/13 (the last reported level of the CPI), the CPI increased 22.19%. During this same period gold increased almost 200% (197% to be precise, when using the GLD ETF). Investors in gold as an inflation hedge would have to see the CPI go up to 565.19, which would be an 143% increase from current levels.

This is not going to happen.

Inflation is not going to go up 143%.

And even if it where to happen, in theory, gold would be flat, as the current price already prices in 143% inflation.

Moving on, the second principal reason investors are buying gold is because of the Federal Reserve and their Bond Buying.

This reason is the most absurd of the 3, as the Fed's monetary easing has no realistic link to the price of gold.

Back in the days of the gold standard, for every dollar printed, The Fed was forced to buy an equal amount of gold. This is no longer the case. But even without a gold standard, Gold investors claim that The Fed's money printing will cause runaway inflation (as there will be more money in the economy and more demand for a finite supply of commodities, which will increase in value). This notion is false, as The Fed is printing money, going out and buying treasury bonds and the money is sitting in the Treasury's safe and/or repaying maturing bonds.

Only if the Government where to go out and increase it's spending would runaway inflation take place. This is certainly not happening with out do-nothing congress. Therefore, The Fed is printing money and it's hanging around doing nothing, and not causing inflation.

Finally, the 3rd principal for investing in Gold is that it's a hedge on a decline in the Stock Market. To this, I point to the results of gold since 2004. From 12/1/04 to date, the S&P 500 was up 61.7% (when adjusted to include dividends). Over this same period, Gold was up 196%. How is this a hedge? If Gold really was a hedge to declining equity prices, we most certainly not see it outpace the stock market in this fashion.

Gold continues to be in a classic speculative bubble and anyone who claims to tell you when it will end probably doesn't know what they're talking about. That's why I simply steer clear of the worthless precious metal and don't bother betting against it.

But, if you're the University of Texas, you can continue to believe that "gold is an investment that likely will benefit if inflation ever picks up, or if financial markets turn unhealthy as investors chase stocks and risky bonds, something generally called "asset inflation," as seen in the U.S. housing bubble."

[Daytr]

Hey Skol, the PE of the NIKKEI is running at around 29 if you don't think that's a problem or a bubble then by all means you should keep investing in the Japanese share market. Japan is rolling the dice that they can reinvigorate their economy & perhaps they will to some extent, however the mountain of sovereign debt is already unsustainable & getting worse & if they do get some growth or even worse inflation & they have to raise interest rates the interest bill escalates & massively. The percentage of tax take that goes to paying interest alone on Gov. debt is already substantial & higher interest rates will only make that worse. You talk about the 'aunties' being the gold buyers is China, well its the Moms & Dads of Japan that have been buying JGBs & as they age they become sellers to fund their retirement. The Japanese Government will need to look to new buyers for their debt & they wont be willing to be paid the ridiculously low interest rate that Mr & Mrs Wantanabe has in the past. I worked for a major Japanese corporation for the best part of 10 years (based in Australia) so I have a fair background in how the Japanese tick etc. By no means am I suggesting anyone over allocate their portfolio into gold equities & I wouldn't suggest anyone do that in any market. When I was working for the Japanese I always thought their best chance was their proximity to China & that the certainly helped, but the Chinese certainly have no love for the Japanese. As for Japan regaining their No2 ranking I would pick countries like India, Brazil & perhaps Russia are more likely to eclipse Japan in regards size of economy than Japan regaining No 2. But that's just my view & yours obviously differs substantially.

[Skol]

India, Brazil & Russia outsize Japan, you gotta be joking, right? Mind you I'd sooner bet on those countries that put my faith in metal that you hope someone will pay more for than you did.

Russia is still in the dark ages recovering from 80 years of communism, a dictatorship rent with corruption, India is a country where everyone desires a public service job, a job for life, where protectionism and bureaucracy are the order of the day.

South America? Never been there but plenty have done their dough down South, a bit like Africa, boomtimes are just around the corner while waiting to get over the latest socialist revolution.

The 'great crash' isn't gonna happen, and the 'money printing' referred to is not money printing at all it's swapping reserves and bonds to bring down the cost of borrowing without increasing the assets on the balance sheet.

I still keep reading letters and posts that gold can't drop much further because it will be less than the cost of extraction. To illustrate how absurd this theory is you could equate it it to the cost of new car cannot drop any further because it will be less than the cost of production = the assembly line shuts down. Right?

[JBmurc]

India, Brazil & Russia outsize Japan, you gotta be joking, right? Mind you I'd sooner bet on those countries that put my faith in metal that you hope someone will pay more for than you did.

Russia is still in the dark ages recovering from 80 years of communism, a dictatorship rent with corruption, India is a country where everyone desires a public service job, a job for life, where protectionism and bureaucracy are the order of the day.

South America? Never been there but plenty have done their dough down South, a bit like Africa, boomtimes are just around the corner while waiting to get over the latest socialist revolution.

The 'great crash' isn't gonna happen, and the 'money printing' referred to is not money printing at all it's swapping reserves and bonds to bring down the cost of borrowing without increasing the assets on the balance sheet.

I still keep reading letters and posts that gold can't drop much further because it will be less than the cost of extraction. To illustrate how absurd this theory is you could equate it it to the cost of new car cannot drop any further because it will be less than the cost of production = the assembly line shuts down. Right?

well of course it does... look at "Ford Australia" or Aus mitz ....costs can only out way profit's for only so long ...GM . Ford would have collapsed had it not been bailed out from tax players..

the Fed made Americans a promise: In pursuit of that goal of economic recovery, it will keep buying bonds -- as many as necessary, for as long as necessary, to ensure that the federal funds rate (the rate at which the Fed loans money to banks) is at essentially zero percent
--so the FED creates 80 billion per month ...to buy debt bonds ......this adds to US treasury debt heading towards 20 trillion ...by 2020 it will be near 25 trillion ..... swapping reserves for bonds ?? hey skol I'll swap you endless JBMURC Bonds 2% return for the next 30yrs for your NZD's LOL