The GOLD scream room

[barrett]

Damn, why didn't I buy gold at 1190? I was so close to picking up the phone and I did not follow through. 

Dualstow,

Today is why you didn't buy at 1190.

Tech,

I read an article you linked back in January to the effect that Gold ETF withdrawals were responsible for the fall in the price of gold. What I didn't actually see in the article, but seemed to be hinted at, was that people kind of don't look at ETFs like GLD as actual gold... that they view them more like an underperforming stock.

Anyway, it looks to me that everyone is piling into stocks at the moment, most likely because they are afraid of being left behind.

Of course I don't know anything for sure except that Gold is on sale now relative to a couple of years ago.

[Lowe]

Gold could be on sale for the next decade, or two.

The Fed takes a conservative tact, not continuing QE, and this broadcasts confidence in the US economy.  Employment numbers have also been good lately, even if a lot the gains are in low wage work.

If the Fed is backing off QE, they may be letting interest rates rise.  Their lack of bond-buying may release some downward pressure on yields.  I don't really think there's a lot of upward pressure though... businesses would need to be bidding up interest on loans, which I don't think they are.

Stocks just seem like the only place to be, since most people expect yields to go sideways or up slightly.  Of course people expected the same thing for 2014, and long bonds went up.  I guess, because there was a loss of confidence in equity?  Idk.

[Libertarian666]

Why is the move absurd in terms of USD? Dollar is gaining strength against just about every currency. Bank of Japan stimulus would theoretically be bullish for gold in terms of yen, right?

Wild money printing should does not make gold go down, no matter who does it. And the gold price is down significantly even in other currencies that have gotten hammered today, e.g., CHF.

Luckily(?) I have contingency plans for such an event (as well as nearly every other event short of a giant asteroid strike), so I won't be needing that cardboard box as a residence...

[Lowe]

A large part of all electronics is made in Japan.  If the Japanese yen decreases in value against the dollar, then the dollar buys a more of some of the world's most important, widely used products.

I just looked at a couple gold price sites, and it looks like gold is treading water if priced in yen.  So theory confirmed.

[Reub]

It does seem that the PP is highly dependent on gold fluctuations. ..maybe too much so.

That is why my variable portfolio is mostly invested in Vanguard Wellesley which mitigates the influence of the volatile metal to some degree in my overall portfolio.

[bedraggled]

I mentioned in my deflation rambling that investor Jim Rogers likes gold again at $950, approximately half the price of its 2011 high.  Rogers suggests that is a proper retracing of the big increase.  Harry Dent, the deflation guy, said watch for gold to drop to $600 with an ultimate landing at $250, back to where it started.

I do not think Rogers puts the majority of his funds in play at any particular time, so I think he has "damage control" figured out.

Just thought I'd reiterate what a couple of smart people have said.

[barrett]

I mentioned in my deflation rambling that investor Jim Rogers likes gold again at $950, approximately half the price of its 2011 high.  Rogers suggests that is a proper retracing of the big increase.  Harry Dent, the deflation guy, said watch for gold to drop to $600 with an ultimate landing at $250, back to where it started.

I guess I'd be impressed if they gave timelines for their predictions, but only if they proved to be correct. Also, in the early 2000s did either Dent or Rogers call the move up to $1912.50 in September of 2011? If not, they missed a more than 500% rise. For perspective, that's like not forecasting the Dow at 85,000 in ten years. Gold was the laughingstock of all investments until it wasn't anymore. Yeah, it could stink up the place for a while... or it could come storming back. There's just not much jeopardy for prognosticators. Two weeks ago the talking heads (not the band) were going on about how the stock market was indeed overdue for a correction. Was anyone saying that all those losses would be erased by the end of the month? Stay diversified and don't listen to the people who get paid to sound confident about the future.

Not coming down on you, Bedraggled. Those guys could end up being right but we should keep in mind the simple lesson that expert stock pickers (mutual fund managers, let's say) don't do as well as monkeys throwing darts (I don't know if the experiment has been run with actual simians yet!).

[bedraggled]

Well put, barrett.

I believe both Rogers and Dent enjoyed the ride to the top with gold.

Rogers has said in Youtube videos that he will not ever sell his gold: it will be left to his kids.  Dent is probably long in Treasuries, and maybe a fancy etf, UUPT, a 3x hyper- dollar fund.  If he is in UUPT, he has done well lately.  Dent mentioned  UUPT in a Youtube video.

Again, barrett, just posting some info.  I will endeavor to post more completely in the future.  As I reread this post, I hope I did not wander.

[barrett]

Again, barrett, just posting some info.  I will endeavor to post more completely in the future.  As I reread this post, I hope I did not wander.

bedraggled,

Wander about all you like. And don't take my word for anything. I'm just playing devil's advocate. It's always interesting to see the beginning of the year predictions for different assets on this forum, and then check them against reality 12 months later.

[dualstow]

Damn, why didn't I buy gold at 1190? I was so close to picking up the phone and I did not follow through. 

Dualstow,

Today is why you didn't buy at 1190.

Hah! I didn't have internet for a couple of days. Imagine my surprise when I tuned in this evening and looked at my gold app.

[dualstow]

How low can we go...

[barrett]

I wish I had an answer to your question, Dualstow. It just seems to me that with all the money printing going on in the world, something could snap fairly quickly and gold might be the place to be if and when that happens. I don't even have any idea what the outcome of the printing might be. I just figure that it will be a negative outcome and that holding something that is accepted worldwide as a store of value is a good move. Whether or not 25% is the right allocation, who knows? If I ponder lower levels like 5-10%, it just feels like too little insurance.

It's hard to keep buying when the price just keeps going down but it makes more sense than chasing performance after the price has already risen.

[buddtholomew]

Deleted. Emotional rant. Gold and GDX really dragging down performance.

[Lowe]

If I am not mistaken, price inflation is mostly a function of lending, since private lending accounts for most debt, and therefore most checkbook money.

Central banks printing money is exchanging high maturity debt for currency, which pushes down yields.  I guess the hope is this will encourage risk-taking by institutional investors.  Does this work?  Idk.  But until lending increases more and faster, there shouldn't be high inflation.

http://research.stlouisfed.org/fred2/series/TCMDO

See the dip in 2009, followed by a slower increase than there was previously.  So the reason this means less inflation is that there will be fewer dollars created, to chase goods and services.

...

Banks are not lending, but is this because they don't want to?  I don't think so.  I think it's because there aren't many worthy borrowers right now, which is mostly because of the demographics in developed countries.  If that is true, then we should expect nominal rates to be bid down by the borrowers.

Until there are more worthy borrowers than there loans, nominal rates shouldn't rise.  If the Fed acts to pressure yields up, by selling some of its Treasurys, this isn't going to change the demographic outlook.  The banks will have to raise their rates on loans, but this will just make more borrowers unworthy.

[Lowe]

So, I am basically saying that bidding process on nominal rates is what is driving inflation right now.  Implicit in this is that inflation isn't going to outpace nominal rates.

Why was 2000 - 2011 different?  The price inflation of goods like land and gold outpaced nominal rates.  Why?  Irrational exuberance, I guess.  Banks were making loans to people who seemed worthy while buying a non-capital (consumable) good like a house.  That is different from making a loan for capital, like a small business.

Here's a theory.  When debt it used to chase non-capital goods, it can create a positive feedback loop where prices outpace interest rates.  Whereas when debt is used to chase capital goods, there is a self-limiting effect on the price of those goods: many businesses fail, and their debt is dissolved in bankruptcy.  That encourages high rates on loans (for a higher standard of borrower).  So self correction is ongoing, instead of all-at-once (2007 - 2008).

[dualstow]

It's hard to keep buying when the price just keeps going down but it makes more sense than chasing performance after the price has already risen.

I find it easier to buy stocks when they're down because of my strong belief, even if it may be erroneous, that stocks will recover several times in my lifetime. Meanwhile, gold could remain low until after I die.

This works both ways, though, in that it frees me from thinking about buying gold on every little dip. Once a year at most. (I'm talking new money, not rebalancing).

Still digesting Lowe's posts...

[buddtholomew]

I am following the rebalance bands religiously to quieten the voices in my head. I am speculating in GDX until gold hits 15%.

[Lowe]

You know, back in the 70's there was a good demographic reasons for a run up in the price of consumable goods.  Namely, the baby boom.  Babies born in the late 40s and the 50s were entering adulthood, and starting to buy cars, gas, and land.  It would be interesting to see the relationship between nominal rates and inflation in that period, which as we know brought about gold's all time peak.

Is there a comparable demographic cause for the more recent run up in gold?  What was the reason that people were buying houses in greater numbers, anyway?

...

For three years, every time I have rebalanced into gold, I have gotten burned (in that asset).  I understand that part of the deal with the PP is that one of the assets should be performing badly.  However at this point I feel like I am walking into a trap that I know is there.  I don't expect to see gold prices rise till I am gray.  I am happy that my 401k, at least, is in a Boglehead portfolio.

[buddtholomew]

You know, back in the 70's there was a good demographic reasons for a run up in the price of consumable goods.  Namely, the baby boom.  Babies born in the late 40s and the 50s were entering adulthood, and starting to buy cars, gas, and land.  It would be interesting to see the relationship between nominal rates and inflation in that period, which as we know brought about gold's all time peak.

Is there a comparable demographic cause for the more recent run up in gold?  What was the reason that people were buying houses in greater numbers, anyway?

...

For three years, every time I have rebalanced into gold, I have gotten burned (in that asset).  I understand that part of the deal with the PP is that one of the assets should be performing badly.  However at this point I feel like I am walking into a trap that I know is there.  I don't expect to see gold prices rise till I am gray.  I am happy that my 401k, at least, is in a Boglehead portfolio.

Lowe, we are living the same life. Tax-deferred assets entirely in a BH portfolio. I've been buying gold since 2011 and currently am down almost 25% on this asset. I keep telling myself to look at the PP as a whole, but a CAGR of almost 4% isn't too reassuring either.

Funny how the portfolio that is supposed to allow me to sleep at night is the one that keeps me wide awake...

[Lowe]

So, I am basically saying that bidding process on nominal rates is what is driving inflation right now.  Implicit in this is that inflation isn't going to outpace nominal rates.

Why was 2000 - 2011 different?  The price inflation of goods like land and gold outpaced nominal rates.  Why?  Irrational exuberance, I guess.  Banks were making loans to people who seemed worthy while buying a non-capital (consumable) good like a house.  That is different from making a loan for capital, like a small business.

Here's a theory.  When debt it used to chase non-capital goods, it can create a positive feedback loop where prices outpace interest rates.  Whereas when debt is used to chase capital goods, there is a self-limiting effect on the price of those goods: many businesses fail, and their debt is dissolved in bankruptcy.  That encourages high rates on loans (for a higher standard of borrower).  So self correction is ongoing, instead of all-at-once (2007 - 2008).

Somebody could easily point out that that mortgage debt can be discharged in bankruptcy as well.  So there should be an ongoing process to up-regulate interest rates on mortgages (and other debt on consumable items).

I think there's some other mechanism at work, though, that keeps the price of capital goods under control, as compared with the price of consumable goods.  I was trying to get at this, but failed.  Capital goods tend to be things which stay the same or decrease in price, as more of them are bought, due to increasing efficiency of scale.  Computers as a good example.  I suppose this is because they aren't inherently scarce, like land or gold.

Capital goods aren't really the same as equity, since equity is more based on the future valuation of capital, than the present.

[barrett]

It's hard to keep buying when the price just keeps going down but it makes more sense than chasing performance after the price has already risen.

I find it easier to buy stocks when they're down because of my strong belief, even if it may be erroneous, that stocks will recover several times in my lifetime. Meanwhile, gold could remain low until after I die.

This works both ways, though, in that it frees me from thinking about buying gold on every little dip. Once a year at most. (I'm talking new money, not rebalancing).

Still digesting Lowe's posts...

I am trying to digest Lowe's posts as well.

Totally agreed with you on believing that stocks will probably keep bouncing up after they get knocked down. But maybe that is because I am not old enough to have realized the pain stock investors were going through during the 1966-1980 period, while I do remember gold's dismal two decades pretty clearly.

Also, I look at Japanese stocks and see that it's possible for that asset to stay down (and we all know that means WAY down) for 25 years and counting.

[dualstow]

I've been buying gold since 2011 and currently am down almost 25% on this asset.

2010 and -27% 

[clacy]

I continue to tell myself that gold is insurance, and insurance products cost money usually, but when you need it, you are REALLY glad to have it.

Fortunately I only use the PP for about half of my investable monies.  The other half I invest (most would probably consider it trading) using relative strength/momentum. Luckily this portion is doing very well because my time in the PP has been pretty average (up overall with low volatility, but under-performing the market considerably). 

I guess when I step back and think about my PP money, it's doing exactly as intended.

[Reub]

Why all of this crying about the price of gold? We all know that it is only one element of the PP. How is your overall PP doing this year? Did you really expect all four elements to rise simultaneously?

[Cortopassi]

It is quite interesting reading this forum and other (gold related) forums. 

It is human nature to not want to be wrong, right? 

This seems a textbook case of recency bias, does it not?  Where recency is the past 3-5 years. 

Stocks:  Buy the dip, they will only go down for a short time and then resume upward
Gold:  Sell the bounce, it will only bounce for a short time and then resume downward

This is so obvious to me now!  A bit late, wish it was 20 years ago.  If anyone reads TFMR and/or Dan Norcini's blog, you get the polar opposite viewpoints, Dan from a trend following, hell it's going down it will continue down until the trend changes to TFMR where everything under the sun other than regular price action is what is causing gold to go down.

I am down 15% on my physical, and certainly don't like seeing it go down, but from where I was at -- nearly 100% in physical, GTU and miners (earlier this year) I made the conscious decision to move into PP which forced me to close out GTU and my miners (at a loss) into bonds and stocks and those accounts are green now.  So PP works. 

You may struggle in these times with why the hell do I own gold, but I guarantee those who want less gold and more stocks will reverse and lament their positions at some point in the future if they moce away from the PP allocation.

The stock market doesn't always go up, bonds don't always go up and gold doesn't always go down!

Mike