Fundamentals and Investing in Gold
OperationButter
Posts: 1,672 ✭✭✭
Without referencing manipulation or price, can someone explain the fundamental difference of investing in gold in, lets say, 2002 vs investing in gold in 2013.
What macro events have changed your course of thinking? What fundamentally has changed to cause investors to not want to purchase PM's?
Again, no referencing price or any manipulation theories, Im looking for real non BS answers. Curious to hear what many have to say on this.
What macro events have changed your course of thinking? What fundamentally has changed to cause investors to not want to purchase PM's?
Again, no referencing price or any manipulation theories, Im looking for real non BS answers. Curious to hear what many have to say on this.
Gold is for savings. Fiat is for transactions.
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
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<< <i>explain the fundamental difference of investing in gold in, lets say, 2002 vs investing in gold in 2013 >>
After 2008 gold was recognized as the logical safehaven (as the data in the following charts got worse). Last couple of years saw the speculators bail out of hard assets and move to equities when it became apparent that logic no longer was the rule of the day. The fundamentals never changed - the number of investors depending on them to actually determine prices changed.
<< <i>What macro events have changed your course of thinking? >>
To buy and hold gold (and other PMs), just a few of them:
<< <i>What fundamentally has changed to cause investors to not want to purchase PM's? >>
I disagree with them in the longer term, but their short term reasons are valid:
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
It would be interesting to be able to find similar charts from India and China since gold is a world-wide market. Most of the demand during the 2008-2011 probably came from overseas. The US and London markets may have
been "THE" markets in the 1970's.....but no longer. Asian women are a HUGE factor now.
Another difference between 2002 and 2013 is that gold miners ore grade has been cut in half. They have to use 2X as much fuel and go through 2X as much ore to find the same amount of gold. Gold is getting much harder
to bring to the surface. Miners are now looking at locations >10,000 feet above sea level, 2-3 miles underground, or in frost-bitten regions in Canada or South America. No matter how you slice it, the easy gold is long gone.
The few really large deposits that are left in North American accessible locations can't get environmental clearances from the host nation/state/municipalities (ie NIMBY). China is importing and mining from 1,000 to 2,000 tonnes
of gold per year in 2013...multiples higher than what they were doing in 2002. We could be witnessing the death of the gold and silver mining industry as it has been known. One way to save it might be to take it all private or
nationalize it. It could be that crushing the share price of miners is the plan to make such takeovers much easier and highly profitable for the players behind the scenes.
As cohodk says, the cure for high prices is low prices. We now have low prices. Maybe they'll go lower. No one wants to buy when things are cheap and/or going lower....the most basic fundamental of "investors." In 2002,
the HFT trading was a non-factor. Today, it might be the ONLY factor in London and NY trading. The ETF's that helped to fuel the run-up from 2004-2011 have now been used as anti-fuel to support the collapse. Those shares
of GLD have been like lead weights on the gold market. Eastern demand has taken advantage of this change. Thousands of tonnes of physical Western gold have gone East in the past 2 years. I still think this was all
pre-arranged to allow China to stock up on thousands of tonnes of gold to better compete in the New World Economy and financial system. In return, they continue to hang on to our FRN's and TBonds.
Gold really has no fundamentals other than a belief system. Pay too much for that belief and well...."it isn't a loss unless you sell"
"Fundamentals" rarely change but price always does. Price should always carry the most weight in an investment decision.
Knowledge is the enemy of fear
He had been quite negative and cautious of PMs for sometime but has stated relative value opportunities in metals.
Knowledge is the enemy of fear
<< <i> Price should always carry the most weight in an investment decision. >>
Only after one has a good understanding of a correct valuation.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Gold will always carry value..... many things may affect value, but - as some wise person once said - "Gold will never be worth nothing." Cheers, RickO >>
That's true with most tangible assets.
Thank you to those that have responded. Im curious to hear all opinions on this, please contribute your thoughts.
BST Transactions (as the seller): Collectall, GRANDAM, epcjimi1, wondercoin, jmski52, wheathoarder, jay1187, jdsueu, grote15, airplanenut, bigole
<< <i> I'm not sure what possible "fundamentals" gold could have. >>
In the case of gold, its fundamentals are the perceived reasons why one should hold it. In today's world-wide economic environment and uncertainty, there are many reasons to turn to it's historical role as a store of value.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
2002 stocks were falling vs. strongly rising in 2013.
2002 interest rates higher than 2013.
2002 actual inflation higher than 2013.
2002 expected future inflation higher than 2013.
Gold is a hedge against inflation and expected future
inflation is very low.
Gold is also a hedge against possible political calamity and
expectations of that are very low. In 2002 we had just experienced
the Sept 11, 2001 attacks on America.
All the Fed activity such as QE is irrelevant if it does not cause current expectations
of future inflation.
2001, gas $1/gal. Gold $300oz.
2013-14 gas $3.50 gal. Gold $1100-1300oz.
My manufactured widgits, $900, profit $450 in 2001 bought 1.5 oz of gold
In 2013, price is $800, my profit per unit is about $300, buys 1/4oz.
Simple for me to figure out. Requires too much effort to buy an oz. Saves me from having to think
<< <i>
<< <i>To ignore the most important aspect-PRICE-is to exercise foolishness. Any investment purchased at an inappropriate price is guaranteed under performance.
Gold really has no fundamentals other than a belief system. Pay too much for that belief and well...."it isn't a loss unless you sell"
"Fundamentals" rarely change but price always does. Price should always carry the most weight in an investment decision. >>
I would very much agree with this perspective. I'm not sure what possible "fundamentals" gold could have. It literally has virtually ZERO use. There is no basis whatsoever for its value other than that it is a shiny and pretty rock. The only "value" one can ascribe is that people will value it in the future, which I assume they will. As for how much it should be valued at, there is absolutely no logical or quantitative basis for determining what that should be. >>
"ZERO" uses? Hardly. There are many uses that gold could be used for, and would be the metal of choice. However, it has always been more highly prized as a store of value and as such has been always too expensive to use in everyday life in the other uses that it could be used for.
As to the statements about not sure what "fundamentals" gold has, and no basis whatsoever for its value other than what people will value it in the future... well, I would think one could say the exact same thing about federal reserve notes. And, as we all know.... you can't eat federal reserve notes.
While stocks, real estate, federal reserve notes, bitcoins? have 'fundamentals' behind them.... real estate can be flooded, destroyed by hurricanes, tornados, hail, and devastated economically (Detroit?); federal reserve notes can be burned, destroyed physically or by government action or by people just deciding they no longer want a piece of paper (or electronic blip); stocks can be for a bogus company, destroyed by bankruptcy, affected by manipulations, government actions, changing times (buggy whips may have been an excellent investment at one time); bit coins... I have no idea on the fascination with these.
The thing gold has going for it that has been prized for most of man's history is that it will withstand earthquakes, flooding, will not corrode away, can be carried with you, will not spoil or decay, can be formed into beautiful art forms. Those are it's fundamentals. While other items can be destroyed in multiple methods, gold tends to withstand these forces and remains that shiny chunk of metal. Stable, and can withstand the tumults of time and human manipulations. Thus its use as a store of value, and most likely will continue to be so.
One thing I just can't figure out. IF it is such a barbaric relic, and no value as stated... why in the world are governments still grabbing on to it? Why not dump it all and accumulate bitcoins and more federal reserve notes?
Backtracking a bit, I had read most of Harry Browne's books in the 1970's and I've always been a coin collector, so I lean toward coins and metals philosophically anyhow. I earned an MBA in Finance in the early '80s, so I have also followed finance as well. In 1999, when Glass-Steagall was repealed I suspected that trouble might be brewing because we had studied that law in one of my finance courses and I was familiar with its intent.
The only reason I got out of (most of) my stocks before the tech boom crash was because I was financing a new house and I took money out of stocks to finance the construction. Most of my house came from Pixar, WorldCom and Sprint PCS. My plan was to keep all of the metals that I was accumulating, keep my retirement accounts in speculative stocks, and to pay off the whole mortgage in one fell swoop. As cohodk will tell you, timing is everything and before all of my stocks were sold the stock market crashed.
I continued selling stocks to finance the house, but I ended up taking out a small mortgage instead of selling everything to complete the project. That wasn't such a big deal, because I still had
income and I wanted to keep the metals I had already bought. At the time, my SEP-IRA was the account in which I kept all of my hardcore speculations - thinking that if I did really well the gains would all be tax-deferred. That account was wiped out 100% in the crash. That put me on notice that investments are NEVER bulletproof.
In my own case, 2001 and 2002 were mainly times of consolidation and getting settled, so I wasn't buying much of anything except a tractor, native grass seed and wildflower mix. But by 2003, I was looking at metals again, which I did continue to buy in '03, '04, '05, '06, '07 and '08. And '09, '10, '11, '12 and '13. We sold our retirement accounts out and paid the penalties & taxes in '06, '07 & '08 in order to buy more metals. Our strategy became "averaging in", and at this time our strategy is still collectible bullion speculation and bullion accumulation.
Here is what I can observe now: When the metal markets go up, our portfolio goes up. When the metals markets go down, our portfolio goes down. You get used to it, and over time you begin to see that what you have is still quite valuable no matter what the nominal price in fiat currency might be on that particular day.
If I were starting from scratch, would I do it again? Yes, gradually and steadily - with only one main caveat - keeping an eye on the political and legal realities, it's definitely a "big picture" approach.
At this juncture, nothing has changed in terms of the ugly landscape we have in terms of investing. Look at the charts that derryb has provided, and you get your answers about what the future holds. It's impossible to know the specifics, but the general trends are ugly, ugly, ugly. It's not rocket science at this point. There will come a day when the baby boomers all want out of their 401Ks on the same day. I won't be in that "crowded trade". As the Eagles sang, I'm "already gone".
I knew it would happen.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>tincup,
First off, I said that gold has "virtually" ZERO uses, and I stand by that. It is a pretty rock. THAT'S IT! You wrote quite a bit to say ultimately that gold is prized because gold is prized, which is pretty much what I said from the get go and agree with you on. There is no fundamental reason why. As for Fed notes, they exist purely as a mechanism for exchange, and do a great job (for the here and now and in recent history) of performing that function. Gold caters to man's inherent subconscious insecurities of having SOMETHING (ANYTHING) be some basis of "worth" that we can rely on. As I said, it could have been sand or dirt and wouldn't make any difference other than that those things would presumably be less "pretty". But gold can never be and will never again be a form of exchange in a modern economy. Gold bugs think that if $hit hits the fan, they'll be some organized medium of exchange for those that have precious metals or the like. If precious metals become any form of exchange, it will be pure anarchy at that point. >>
I didn't know we were discussing using gold as a medium of exchange or gold bugs regarding $hit hitting the fan... that would be an entirely different discussion.
I was only responding to the statement that "gold has "virtually" ZERO uses... ...It is a pretty rock. THAT"S IT!" These are statements I merely not in agreement with, when taken in regards to the OPS opening question regarding fundamentals.
Using your logic/argument, a Federal Reserve Note has no intrinsic value either. It is merely a piece of cloth/paper. THAT'S IT! It is only worth what anyone will value it as in the future (yes, it is useful for a medium of exchange. That is not in question). You can't eat a federal reserve note!!!
Gold DOES has other uses, other than just being a pretty rock. A little research on the internet should make that apparent. As stated, it is not used much for anything else though than as a store of value... due to it being more prized for just being a 'pretty rock' sitting there in the vault. You can't eat gold either!
Both gold and the federal reserve note are only worth what someone will value them in the future. The fundamentals for gold remain the same IMO as in the ages before us.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
We are finally getting out of fighting wars in distant lands and hopefully will not start any new ones. The budget, while not balanced, is at least not growing and given the growth in GDP, if we can maintain a constant federal budget for a while, growth will help resolve some of the financial pressures.
While I like gold, I do not see this as a good time to be taking a position in it as the one place in the world that is making money are US corporations. Thus, I remain invested in the US stock market. IMHO there will not be any issues as long as so much money remains on the sidelines and inflation remains quite low.
Edited to add, I do not believe in charts as the past does not predict the future. Show me a recognized business school that provides graduate training in charts. Charts are useful, but only in viewing the long term, not predicting what will happen next. No chart could predict 9/11, and other major events that cause market disruptions.
Trends to Watch For in 2014
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Knowledge is the enemy of fear
<< <i>Gold has a tendency to miss the slow vs drastic changes also. It sat dormant for 20 years while other asset classes increased and inflation and govt debt increased. Then it caught up over the next decade. >>
While it may be slow, Rust never sleeps
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Gold is merely the opposite of the dollar, in terms of being an alternate currency or store of value.
We're about to find out what happens when we want to import stuff on the cheap that won't be available so cheaply, and we're about to find out what happens when the tax base crumbles because of onerous new taxes that destroy what's left of business profitability. Of course, there's always more money creation to fall back on.
I knew it would happen.
As Warren Buffet said, "We made money in the 60s". Check out the tax rates for that era.
There is a lot of anger about taxes going around, glad I have not caught that bug.
<< <i>After reading in many posts about the onerous nature of our current tax structure, I took a look at historical rates. The current top rate is 39.6 percent for federal income tax. Looking back, in my lifetime it was MUCH higher. The top rate was 70 percent for a long time and if you go back to the 50s, it was even higher. While no one likes taxes, to say the burden will kill business is without historical foundation.
As Warren Buffet said, "We made money in the 60s". Check out the tax rates for that era.
There is a lot of anger about taxes going around, glad I have not caught that bug. >>
You would be angry if you figured in the taxes you pay outside the income tax system with added fees on many other things. State and local sales taxes, federal tax on gasoline, Social Security tax from your paycheck, etc. Look closely on your next bill for the taxes you pay on your electronic communications such as cell phone, telephone, internet and cable TV. You now have the new taxes (outside of the income tax system) dictated by health care reform. As tax revenues decline for cities and states, officials are becoming more creative in the way they take your money. Oh, and let's not forget the greatest "hidden" tax ever created - inflation.
So, while the "tax structure" appears tame, the money taken from your pocket remains out of control. Disposable income numbers are misleading because they only consider what's left after income taxes, not what's left over by the time ALL of the hands have been removed from your pocket.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
-------------------------
Retired Mint Guy, now working on a Silver Washington Set and Everyman Type Set
Private businesses must make payroll in order to continue providing jobs and income for their employees. The government and government-funded institutions do not. Enough said.
I knew it would happen.
Let me ask you a sincere question. Would you work and expand your business if your marginal tax rate was 70%?
That's what mine is now. That's what my dad's was in 1980 when he closed his doors for good.
You work a 10hr day, 7 goes to the govt, one form or another
BTW, buffet doesn't pay tax. Bad example.
<< <i>I choose not to be angry. Many of the "taxes" are fees related to service. Yes, we pay use taxes for many things. I do not let it set my hair on fire. My wife's entire salary (professor) paid our tax bill last year. Yet I have am in a better place than I ever imagined when I was young. This IS the land of opportunity if you are willing to take the opportunity. Many here have. It is all a matter of perspective I guess. >>
Good sheeple.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Liberty: Parent of Science & Industry
40% fed
12% state
15.5% self employment "social security" sarc intended.
And 20 other taxes in the golden state.
You must be young and work for someone.
<< <i>
<< <i>Gold has a tendency to miss the slow vs drastic changes also. It sat dormant for 20 years while other asset classes increased and inflation and govt debt increased. Then it caught up over the next decade. >>
While it may be slow, Rust never sleeps >>
But people do......six feet deep.
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>Gold has a tendency to miss the slow vs drastic changes also. It sat dormant for 20 years while other asset classes increased and inflation and govt debt increased. Then it caught up over the next decade. >>
While it may be slow, Rust never sleeps >>
But people do......six feet deep. >>
That's why I stack gold and not people.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
You make good points.
I pay more in taxes than you make.
I see from reading this thread that govt employees and/or govt employee spouses seem to have no problem with the tax structure.
Who knew?
<< <i>Also, being self employed allow a VERY GENEROUS loophole for tax deferment using a SEP-IRA. >>
Your loophole will cost you more in taxes later - unless you think tax rates will go down. Postponing a 20% tax liability does not much good if it eventually becomes a 30% tax liability.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
]
<< <i>Baseball,
40% fed
12% state
15.5% self employment "social security" sarc intended.
And 20 other taxes in the golden state.
You must be young and work for someone.
I do work for someone as well as being self employed, also golden state. However, your premise is entirely inaccurate as the 40% marginal rate doesn't ever come close to intersecting with FICA so if you are even in that bracket, you wouldn't paying anything on self employment. During the time that your are withing the FICA ceiling not only are the average tax rates much lower on both federal and state, but there are a bevy of deductions that make your average tax rate probably no more than half of 70%, INCLUDING 15.5% self employment taxes. So I'm not sure where your coming up with those figures. Also, being self employed allow a VERY GENEROUS loophole for tax deferment using a SEP-IRA. >>
Good luck with those sports cards this year.
<< <i>
<< <i>
<< <i>
<< <i>Gold has a tendency to miss the slow vs drastic changes also. It sat dormant for 20 years while other asset classes increased and inflation and govt debt increased. Then it caught up over the next decade. >>
While it may be slow, Rust never sleeps >>
But people do......six feet deep. >>
That's why I stack gold and not people.
Oh, I thought you were stacking rust.
Knowledge is the enemy of fear
Now for a few big picture items. The great bull market has been driven by Asia. The U.S. demand is less than 10% of the worldwide demand for physical gold. So any and all that spend all their time focused on domestic demand are looking at about 8% of the picture. Slowing growth in China, tighter monetary policy, and a slew of new taxes on imports in India are among the big fundamental reasons that gold broke its string of 12 straight up years. China and India account for more of 70% of world wide demand.
Another potentially big picture item is asteroid mining. Laugh if you will, because it is pie in the sky stuff for now. However, for those that invest for the long term, like foundations and trusts, long term can be a big deal, even if such things might be 50 to 100 years out. If there is a break through, the price of gold could come crashing down. They don't have to bring in a bunch of big asteroids, just a small demonstration project, plus the possibility of large supplies could send the price of gold crashing down. As has been said, the new supply from traditional mines gets harder and harder to reach each year. However, a big breakthrough in tech, could change that. So while gold might not ever go to zero, I can imagine plenty of scenarios where it goes down 50%, 75% or even 95% in a relatively short period of time (heck it was down 30% this year and nothing happened except modest talk of tapering and gravity taking hold after a 400% up move over 12 years). Aluminum used to be more precious than gold, then the invention of electricity and other tech allowed for easy extraction and refining.
The big picture wild cards are always the big historical events. World war, revolution or civil war in the U.S., massive famine, massive plague are the big four, and if any of those occur, all bets are off.
Every day, some of the owners die and another midas hoard comes onto the market.
Some of the gold gets re-sold, and some out-of-date pieces get manufactured into new, attractive pieces with new higher prices.
Later, the premium will have evaporated, the gold will get sold for "melt" and the process renewed.
Same as it ever was.
Liberty: Parent of Science & Industry
As far as taxes go, anyone that thinks paying more taxes is ok should have their head examined. We all work until April each year before we have a dollar to buy, or invest anything at all. Dollars aren't easy for folks to come by these days, never have been. We're on a crazy fast treadmill running our asses off to cover bills and basic necessities, it's gonna be hard to stay on it the gov keeps turning up the speed. I can see why people just say f it and give up. It's a sick society, were all sick in so many ways, it would be different if just throwing money at our probs would help but seeing tax money wasted and mismanaged makes me sick.
On a side note - anyone else see where Steven Hawkings now says there are no black holes? He forgot about the FED.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Liberty: Parent of Science & Industry
<< <i>"black hole" and "big bang" have always been remarkably bad names for the phenomena they are intended to describe. >>
sorta like "irrational exuberance."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>"black hole" and "big bang" have always been remarkably bad names for the phenomena they are intended to describe. >>
sorta like "irrational exuberance." >>
No, not like that at all.
I find "irrational exuberance" to be a very apt expression describing the emotions of investors near the upside peak of any valuation bubble, whether tulips, gold, stocks, houses, beanie babies, whatever.
Liberty: Parent of Science & Industry