Gold

[Skol]

I have just acquired the latest Barrons magazine and in it there's an article entitled:

'Gold: The Ultimate Fiat Currency.'

This excellent article should be required reading for the goldbugs. It' puts to bed a lot of the theories the goldbugs desperately hang on too, hoping that the gold price is about to go through the roof. It points out that the demand is so great that a huge premium is being demanded, $200/$300 because of the ETF fund acquisitions and demand for gold coins has jumped 65% so far this year. This is where the 'smart money ' is but makes the point that;

"Wall Street is just a corner of the public mind. It follows fads, so money congregates in outlandish places. In the counterintuitive world that is the investment markets, you don't want to be where the smart money is. You don't want to be "where it's at".
A vital observation of the fun-starved Austrian school of economics is that investors err together, so unanimity of opinion is a danger sign."

and

"Only 15% of gold is used as a monetary metal; the rest is used as a commercial metal, and that use, particularly as a corrosion-resistant electrical conductor for semi-conductors is declining. Regrettably, it is a soft, semi-useless metal with very few industrial applications."

"Gold is just another fiat currency. The only reason gold is valuable is that we believe it is valuable. Ultimately, this gold bubble ends in tears. When and how far gold's price will decline is anyone's guess, but a smart bet is "sooner rather than later".

"Another part of the logic for gold - that whole flight to safety thing - doesn't exist anymore. Maybe once upon a time, gold was a handy way to buy passage out of an oppressive country but not anymore. When everybody obsessed about gold, and it was highlighted as a great doomsday hedge against inflation, financial futures didn't exist. Now they do, so gold is a third-rate safe haven: It pays no interest and cost money to insure.
(Textbooks say it has a 'positive cost to carry')."

I will put some more of this article on here as I have the time but make the point that Barrons is a magazine for contrarians.

I have no problem with punters putting their hard-earned money into gold tricha, the only thing I take issue with is some of the goldbugs spurious, illogical arguments.

[Silverlight]

Just found this thread, not going to weigh in to much on your thoughts skol, but Gold has its place during different financial cycles.

Gold is a store of value, and always will be, 4,000 years of history back this up. However, there are 100+ other places to store value, and some will return better value than others over a period of time, if you select peaks and pits.

Agreed someone who placed all there wealth into gold in 1979, will have not got the store of value of someone who chose to invest in the USD or timber, or NZ real estate. However history has proven during economic uncertainty, gold provides a preserving of wealth, that other currency assets don't.

Gold is both a currency and a commodity, during times of unrest it appreciates like a currency because it is finite, during times of stability it acts like a commodity, moving up and down on the whims of supply and demand from the jeweler and electronic manufacturing industries.

The world banks own gold, the Chinese banks own gold, because they believe that it is a store of value.

The reason you buy gold, comes down to one question, do you believe the current place you have your savings stored will be maintained if the world economic situation changes?

If your view is that we are still in for a big correction and the world economies can not maintain their debt levels and that your savings will be eroded and not preserved by depreciating values of the underlying currencies you buy gold.

If your view is that the world economies will all recover and we will now move into economic stability for the next 10 -20 years, then you don't buy gold.

Its that simple.

[Skol]

The reason you buy gold, comes down to one question, do you believe the current place you have your savings stored will be maintained if the world economic situation changes?

What kind of 'economic situation' would you envisage that justifies buying gold?

What sort of gold do you own, shares, coins, ingots or ETF's?

[Silverlight]

What kind of 'economic situation' would you envisage that justifies buying gold?

I stated the extremes at each end of the scale. Fiscal irresponsibility on behalf of the government with which you have your current wealth (or savings) stored in their currency.

What sort of gold do you own, shares, coins, ingots or ETF's?

I have invested in rare gold coins and a few unhedged mining producers, and few exploration companies, however these holdings make up less than 25% of my savings.

If you place more than that into your positions, then you need to have completed a lot of research to justify your holding, or be an expert in the geology/ mining space. I am of the view that fiscal problems of the western economies will lead to some fiscal issues, which will directly effect the value of the major currencies. If this occurs gold may enter a real bull bubble price and spike to multiples it is now, if not and these fiscal issues are reigned in, gold may slowly depreciate.

I am more inclined through reading, history and opinion, expecting the fiscal policies not to be reigned in and thus expecting gold to appreciate, however, even if the gold price decline to 1,000 or lower, won't impact my holdings a great deal as I have not leveraged, other than the exploration companies, which I have already discounted to zero, in the case that they produce nothing, and my direct gold holding through coins, will on a very long term scale, go up as they are a rare, and only about of quarter of their value is based on the price of gold, they fit more into the category of rare art or wine, which are two other very intriguing markets.


What are your specific opinions’ or views on the world economy? China does own over 1,000 tonnes of gold for a reason.

[darksentinel]

2012 will be interesting. What is it, 800 billion of US bonds, companies etc. up for refinancing? That's a lot more than 1000 tonnes of gold.

[ENP]

For investors here who own gold...

If gold prices collapsed to 50% of todays value in the next 6-24 months. Would you buy more gold? Or would you buy something else? Would you buy gold in a down trending market?

Why/why not?

[skid]

I think its important to make the distinction between gold as an investment,and gold as an insurance policy.
I own a bit as an insurance policy against the worst case scenario[or heading in that direction] a bit like the one in a hundred year flood.
I also invest in other things that can be more of a bang for your buck[or not] but i like having a bit of the gold stuff just in case....

[shasta]

For investors here who own gold...

If gold prices collapsed to 50% of todays value in the next 6-24 months. Would you buy more gold? Or would you buy something else? Would you buy gold in a down trending market?

Why/why not?

ENP

It depends on what reason you bought into gold in the first place

Physical Gold is more often seen as a small part of a long term portfolio (insurance against the $US & inflation), if you held the physical bullion then a drop in the price would provide a top up opportunity, especially if rebalancing a portfolio light on gold.

If you were to ride the Gold price up & trade it, then companies producing gold are a better option (that way you would sell on weakness)

Disc: No gold held, accummulating silver coins for the long term

[ENP]

Yea just interested too see if all the people saying the world is going to end, hyperinflation, etc, if they sell when the going gets tough or buy more

[JBmurc]

"Gold is just another fiat currency.-------------What a load of bollocks--- you should look up what a Fiat currency is---It for one isn't a precious metal that's for sure there's absolutely nothing fiat about gold,silver,platinum etc just try and find the stuff