mean like you missed out on housing? I also missed out on making a fortune from bitcoins, but unlike you lot I'm not running around whinging about bitcoins being in a bubble and how they must revert to mean.
Just think you could have made 10% intra-day in NCM if you weren't in debt to an already cooked asset bubble.
The market price of gold might have fallen during the year but hoarding of the precious metal by individuals and central banks is approaching record levels.
In trading terms, it has been a tough year for the yellow metal. The price has fallen 28 per cent in 12 months. But the fundamentals, characteristics and attractions of gold are undiminished because we are in times of extreme intervention by governments, the outcome of which is completely unknown.
The first rule of investment is preservation of capital. The second is to search for gains or income that fits with your appetite for risk.
Gold has been the insurance of choice for thousands of years to satisfy the first rule, despite the fact that it generates no income and incurs costs for storage.
For other ways of protecting wealth, such as a bank account or government bonds, the rates of interest have been destroyed by monetary stimulus.
With negative rates on some of the safest bonds in the world, such as short-dated Swiss government bonds, investors now have to pay to lend Switzerland money and, once adjusting for inflation, investors are also paying the bank to hold their cash.
Against this backdrop, it seems odd that the price of gold has fallen so sharply. There are several reasons for this. Like all markets, over-exuberance had pushed the price higher than the fundamentals could support. At the same time, gold's big rival as a store of value, the US dollar, has recovered as strong economic growth supports the world's reserve currency.
One of the most interesting reasons that can be linked to the falling gold price is found in "Gresham's Law" that "bad money drives out good".
The Tudor financier, Thomas Gresham, found that: "When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation."
Suppose, for example, there are in circulation gold coins that weigh one ounce of gold. After a few years some worn coins will weigh 0.9 ounces. In a free market, the worn coins would be valued at 90 per cent of the unused, or new coins, and the old coins would leave the market.
But if a government introduces artificial price control and decrees that all coins must be treated equally, the government has artificially overvalued coins that should trade at a 10 per cent discount, and undervalued the coins with a real physical value that is higher.
Consequently, any rational person will use the old and lighter coins for circulation and hoard the undervalued but new coins as a store of value.
This point is highlighted in the paper What Has Government Done to Our Money? by Murray Rothbard. Artificial currency devaluation is not new. Gresham was merely drawing conclusions from the studies of the Islamic scholar and historian, Al-Maqrizi, who noted the effect of currency devaluation during the Mamluk empire in Egypt.
Al-Maqrizi observed the effect of a liquidity crisis on the Mamluk dynasty in the early 15th century that caused money circulation to dry up.
The solution was mass-enforced currency devaluation through replacing the gold and silver-based dinar with copper coinage, or fulus, and for a period the Mamluk economy recovered rapidly as trade once again flowed freely.
However, inflation soon crept in and prices ran out of control as the currency was repeatedly debased. All the while, gold hoarding was taking place behind the scenes by those in power to protect their wealth.
Fast forward to the present time, and the money printing continues apace, while demand for physical gold has risen 24 per cent in 12 months. Central banks have been accelerating gold purchases since quantitative easing began in early 2009. Central banks added 93 tons of gold to reserves in the third quarter, according to the World Gold Council, and central bank purchases are expected to hit 400 tons for the full year.
China is hoarding huge amounts of gold – gross imports from Hong Kong in the year to date are more than 1113 tons, almost doubling from the imported amount in the same period last year.
The guardian of fiscal probity in Europe, the German Bundesbank, is repatriating 674 tons of gold from France and the US during the next seven years.
The gold price at $US1222 an ounce is certainly well above lows in 2001. But it is now priced in about the mid-range, when compared to oil and the stock market – and relative to government bonds and cash it is now more attractive as yields have fallen.
Gold is simply the best insurance against inflation, or deflation. "I would rather own gold than government bonds, high-yield bonds and equities. If this scenario [deflation] were to pass it would lead to even more money printing around the world," according to Marc Faber, the contrarian Swiss investor.
Just think you could have made 10% intra-day in NCM if you weren't in debt to an already cooked asset bubble.
Yeah, and I had a crystal ball!
Seriously, though, chasing high gains is too risky for me. I'm more than happy to adopt a long term approach and get reasonable gains, good (and growing yield) and have lots of ways to manage risk.
mean like you missed out on housing? I also missed out on making a fortune from bitcoins, but unlike you lot I'm not running around whinging about bitcoins being in a bubble and how they must revert to mean.
Yes, but you would be right. I'm nearing my 2014 prediction for gold before 2014 even stars (-20%).
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
Being paid to wait for capital growth - yes please!
The problem is the long timeframe to realize that. You expect the world to be much the same (or better) in a decades time. There is little chance of that now.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
2. investors, these buy in relation to inflation and interest rates. With mainstream currencies devalued at 5% pa, an untaxed interest return of 5% is required merely to keep value. Hence gold over the long term will beat anything less than this.
3. Finally the central banks. 1979 into the 1980's these hoarded gold keeping the price high. Will they do so again?
The benchmark 10 y treasury has climbed 5 bp in just the last day or two. As rates increase, generally gold will fall. At the GFC interchange rates between climbed from 3% to over 5% and gold plummeted. Then it rose strongly with the QE that followed after.
Well done Count. Peter
stinkbug
20 Dec 2013, 04:22 PM
Yeah, and I had a crystal ball!
Seriously, though, chasing high gains is too risky for me. I'm more than happy to adopt a long term approach and get reasonable gains, good (and growing yield) and have lots of ways to manage risk.
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