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Wake up Goldbugs, Gold Skyrocketed overnight; Who would have thought...
Topic Started: 20 Jun 2014, 06:49 AM (22,005 Views)
Sydneyite
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GloomBoomDoom
27 Jun 2014, 11:13 PM
I guess Gold has just protected holders from the real inflation rate...
Some people think gold is in a bubble yet property has outperformed it?
Wouldn't that indicate property is more likely to be in a bubble?
Gold *was* in a bubble - the figures we are quoting are post the gold bubble correction.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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GloomBoomDoom
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Sydneyite
27 Jun 2014, 11:20 PM
Gold *was* in a bubble - the figures we are quoting are post the gold bubble correction.
Oh OK... I'm glad property bulls don't do that when quoting figures and statistics... :re:
MSE
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goldbug
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Shadow
27 Jun 2014, 03:09 PM
MMM
27 Jun 2014, 10:28 AM
And your gold crash claim. Its still up 500% since 2003
AUD gold price in January 2003 was 613.10

A 500% increase would put the price today at 3679

I'd like to see your evidence that the AUD gold price is currently 3679...
More bullshit hey shadow. Now you quote in au dollars, but you always quote US dollars because the US price is always lower. mmm is correct, it was $200 an ounce in 2003 up 5 fold from that now. You're a pathological lier shadow. Even your aussie dollar price is way off. It was more like $500 in 2003.
Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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Curious Non-Economist
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Sydneyite
27 Jun 2014, 11:04 PM
Not wanting to undermine your point too much, but you have also made a maths error there. :re:

Jan 2003 -> Jun 2014 - 11.5 years. To go from $613 -> $1394 in 11.5 years actually requires compounded annual return rate of about 7.4% (not 8.1%).

I note that despite multiple corrections, a GFC, and even a resulting share market crash etc, both property in just about every capital city, and diversified ASX listed shares, beat that return (including yield) over the same period of time. And this was the period when gold had the best bull run it had seen in nearly half a century. :dry:
Ah, yes. Thank you for correcting me, sometimes forget what year it is :bh:

Still, 7.4% is a pretty decent return. Beats out inflation plus the risk free rate for most of the period.

So, my question still stands, does gold take a lot of work to own? Is there a holding cost?

Can I ask what you base your property and ASX numbers on?
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Sydneyite
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Curious Non-Economist
28 Jun 2014, 11:03 AM
Ah, yes. Thank you for correcting me, sometimes forget what year it is :bh:

Still, 7.4% is a pretty decent return. Beats out inflation plus the risk free rate for most of the period.

So, my question still stands, does gold take a lot of work to own? Is there a holding cost?

Can I ask what you base your property and ASX numbers on?
Re the gold return - yes 7.4%pa over 11.5 years is not bad, however the biggest issue with gold is the inconsistency of it's price performance, and the volatility as well along the way. Ie the price was essentially flat for nearly 20 years from the early 80s until about 2000 - that's not so great a return, and certainly useless as an inflation hedge when inflation through this period was very high.

Re work to own - with gold it depends on how you invest. If you buy physical bullion, coins etc at the retail investor, then the buy/sell spread is very high, eating up to 5% of value each time you transact (both buy and sell) - that's even more expensive than residential property, with stamp duty and agent fees etc. Once you have physical, you need to be able to store it safely, as it can be easily stolen - this may cost $$$ if you choose to store in a bank safety deposit box or a vault etc.

If you invest in gold via an ETF then the transaction costs/spread and holding costs are much lower, but you don't physically possess the asset, so you rely on the ETF manager, banks etc for that - many gold bugs don't like this sort of arrangement as it introduces more risk in their minds. Likewise you can invest via futures contracts or similar - again transaction costs are very low this way, you get full exposure to the wholesale price movements, and no holding costs as you are trading a derivative / paper contract only (unless you hold to expiry and take physical delivery). But again gold bugs often don't like futures as there is financial system risk, counter-party risk etc. Many of them also think the futures market is heavily manipulated, and they deride as the "paper gold" market etc.

Re property returns - see ABS index for Australia or any particular city, and add in 4 or 5% rental return on average each year. For shares see the XJO accumulation index.
Edited by Sydneyite, 28 Jun 2014, 11:59 AM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Curious Non-Economist
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Sydneyite
28 Jun 2014, 11:57 AM
Re the gold return - yes 7.4%pa over 11.5 years is not bad, however the biggest issue with gold is the inconsistency of it's price performance, and the volatility as well along the way. Ie the price was essentially flat for nearly 20 years from the early 80s until about 2000 - that's not so great a return, and certainly useless as an inflation hedge when inflation through this period was very high.

Re work to own - with gold it depends on how you invest. If you buy physical bullion, coins etc at the retail investor, then the buy/sell spread is very high, eating up to 5% of value each time you transact (both buy and sell) - that's even more expensive than residential property, with stamp duty and agent fees etc. Once you have physical, you need to be able to store it safely, as it can be easily stolen - this may cost $$$ if you choose to store in a bank safety deposit box or a vault etc.

If you invest in gold via an ETF then the transaction costs/spread and holding costs are much lower, but you don't physically possess the asset, so you rely on the ETF manager, banks etc for that - many gold bugs don't like this sort of arrangement as it introduces more risk in their minds. Likewise you can invest via futures contracts or similar - again transaction costs are very low this way, you get full exposure to the wholesale price movements, and no holding costs as you are trading a derivative / paper contract only (unless you hold to expiry and take physical delivery). But again gold bugs often don't like futures as there is financial system risk, counter-party risk etc. Many of them also think the futures market is heavily manipulated, and they deride as the "paper gold" market etc.

Re property returns - see ABS index for Australia or any particular city, and add in 4 or 5% rental return on average each year. For shares see the XJO accumulation index.
I agree that you wouldn't want to hold gold between the time LTCM collapsed and 2000.

Following your suggestion, I did some quick research on gold vaults, works out to be about 0.8% ($420) per year at the current price, I don't know about historically. So 80 basis points is a reasonable financing drag, better than most superannuation funds. The buy sell spread sounds high, I agree.

The gold market is very heavily manipulated, although not as much now as before 2000. However,interest rate markets are manipulated by the BBA member banks, and now share markets are manipulated in many countries by central banks making purchases. Goods and service markets are manipulated through subsidies and tariffs. All markets are manipulated now as free markets are considered dangerous to rich people.

In regards to the ABS index, that is a hypothetical return on a hypothetical house. Someone who, in 2003, purchased a 3 bedroom terrace in Newtown, Sydney when it still had the last vestiges of an inner city ghetto, and someone who purchased a 4 bedroom house in Airlie Beach, QLD when the QLD tourist boom was in full swing would have had very different return outcomes. OK, so you said capital city. How about a 2 bedroom unit in Penrith versus 2 bedroom unit in Chatswood? Those prices in Penrith look pretty volatile to me. So picking a property that will at least perform as well, or even beat the return of the hypothetical house the ABS reports on, is either a phenomenal level of skill to predict the future, or just dumb luck.

I am pretty sure the XJO accumulation index is a hypothetical index that you can't actually buy. No? Doesn't the accumulation index assume a tax free environment and zero transactions costs? You can buy an index fund or an ETF. Care to choose one?
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Sydneyite
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Curious Non-Economist
28 Jun 2014, 12:43 PM
In regards to the ABS index, that is a hypothetical return on a hypothetical house. Someone who, in 2003, purchased a 3 bedroom terrace in Newtown, Sydney when it still had the last vestiges of an inner city ghetto, and someone who purchased a 4 bedroom house in Airlie Beach, QLD when the QLD tourist boom was in full swing would have had very different return outcomes. OK, so you said capital city. How about a 2 bedroom unit in Penrith versus 2 bedroom unit in Chatswood? Those prices in Penrith look pretty volatile to me. So picking a property that will at least perform as well, or even beat the return of the hypothetical house the ABS reports on, is either a phenomenal level of skill to predict the future, or just dumb luck.
Sure - individual properties and different areas/suburbs may perform differently over the long term. The astute property investors often place themselves on the "up side" compared to the median result, but this does take good judgement, good timing, and often local knowledge of the city/area you are investing in. And of course some end up on the down-side as well. But for the purposes of a generalised comparative analysis, I'm not sure what else you could use other than the median price index etc? My own returns from property in Sydney over 20+ years have probably exceeded the median increase some - but I undertook value adding renovations and so on to achieve that.

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I am pretty sure the XJO accumulation index is a hypothetical index that you can't actually buy. No? Doesn't the accumulation index assume a tax free environment and zero transactions costs? You can buy an index fund or an ETF. Care to choose one?
ETFs are the way to go IMO to replicate the performance of the accumulation index - yes the index assumes zero transaction costs, and it ignores tax, but that means it also ignores franking credits, which for most people cancel out most or all tax owed from dividends anyway.

In fact ETFs are where the majority of my equity investments currently sit. The ones I like for Australian equities are VAS (Vanguard Australian Shares - ASX-300), ILC (iShares ASX-20 Index Fund), and/or STW (SPDR S&P/ASX 200 Index Fund). All provide dividend re-investment so you can re-invest all returns with no spread/transaction costs. Fees are very low ranging from 0.15% - 0.29%pa, and buy/sell spreads are usually quite tight - only a few basis points, and then you only have to pay online stock broker brokerage, so say 0.11%. So total transaction cost when buying or selling on market is only about 0.15%.
Edited by Sydneyite, 28 Jun 2014, 01:17 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Shadow
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Evil Mouzealot Specufestor

goldbug
28 Jun 2014, 04:54 AM
More bullshit hey shadow. Now you quote in au dollars, but you always quote US dollars because the US price is always lower.
I always quote in AUD because that's what we use here in Australia. I don't think I have ever quoted in USD.

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You're a pathological lier shadow. Even your aussie dollar price is way off. It was more like $500 in 2003.
The AUD gold price in January 2003 was $613 like I said. Look it up. For a gold bug you don't seem to know much about the price history of gold.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Curious Non-Economist
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Sydneyite
28 Jun 2014, 01:15 PM
Sure - individual properties and different areas/suburbs may perform differently over the long term. The astute property investors often place themselves on the "up side" compared to the median result, but this does take good judgement, good timing, and often local knowledge of the city/area you are investing in. And of course some end up on the down-side as well. But for the purposes of a generalised comparative analysis, I'm not sure what else you could use other than the median price index etc? My own returns from property in Sydney over 20+ years have probably exceeded the median increase some - but I undertook value adding renovations and so on to achieve that.
Generally, financial assets over the long term outperform inflation because of survival bias, that is, assets returning below inflation lose investors and the capital that goes with that. For stocks and bonds, if the company or government goes bankrupt and disappears, so does the financial asset they have issued, but property does not, it just sits there with a hypothetical value until it is demolished and turned into a park or waste disposal plant.
So property returns tend to mislead if expressed in notional terms and book value rather than real terms and market value (which is theoretically zero if there are no buyers). In those terms, property in most areas performs very badly as an investment. The average price of property is raised by areas in which the government has placed a restriction on access to the main centres of commerce and employment. Those areas outperform.

Take for example Hervey Bay in QLD, which in population and size has grown at an incredible rate over the last decade. As of the 2011 census, Hervey Bay's population grew roughly 7% per year from 2003. Current estimates show that rate has not declined much in the past 3 years. And yet, median house price growth was only 3.4% in the same period. Why? Because Hervey Bay built more houses! This is an excellent economic outcome for Hervey Bay. The economy grows, the population grows, and the cost of housing in real terms stays flat. Everyone gets richer, except for those who speculate on rising property prices due to supply distortions.

So while you are correct that the median price index is the only metric that is comparable to a asset traded in a financial market, it is also a rather meaningless one, because all it measures is the degree to which supply has been constrained in capital cities close to their economic centres, which has pulled the average above the rate of inflation.

On a separate note, did you subtract the cost of your renovations and the opportunity cost of the money spent from your return calculations?

Quote:
 
In fact ETFs are where the majority of my equity investments currently sit. The ones I like for Australian equities are VAS (Vanguard Australian Shares - ASX-300), ILC (iShares ASX-20 Index Fund), and/or STW (SPDR S&P/ASX 200 Index Fund). All provide dividend re-investment so you can re-invest all returns with no spread/transaction costs. Fees are very low ranging from 0.15% - 0.29%pa, and buy/sell spreads are usually quite tight - only a few basis points, and then you only have to pay online stock broker brokerage, so say 0.11%. So total transaction cost when buying or selling on market is only about 0.15%.

ETFs are the way to go IMO to replicate the performance of the accumulation index - yes the index assumes zero transaction costs, and it ignores tax, but that means it also ignores franking credits, which for most people cancel out most or all tax owed from dividends anyway.


I took a look at VAS. For myself, I would need to pay 17% tax on dividend returns as I am already in the top marginal tax bracket. As far as I know, you cannot dividend re-invest in Australia gross of tax. Is that correct?. Super funds however will get dividends taxed at the concessional rate, which means a franking rebate of around 15%. If I were ten years older, I would raise my super contributions to the concessional cap to take advantage of that, but I am unfortunately in the age cohort whose preservation age is an endlessly receding horizon (due to imaginary budget crises and a much slower than expected decline in aged pension income dependency).
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Sydneyite
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Curious Non-Economist
28 Jun 2014, 02:04 PM
On a separate note, did you subtract the cost of your renovations and the opportunity cost of the money spent from your return calculations?
Just to answer this question - yes I did subtract these costs from my calcs.

Also - re super and the possible ever advancing preservation age - I hear you, it's this concern that stops me putting a lot more into my super as well, even though I pay more tax on the investments held outside of super. :mad:
Edited by Sydneyite, 28 Jun 2014, 03:24 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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