Gyroscopic Investing

So inflation is low, and interest rates are low, but real rates are positive.

When the Fed increases rates, that doesn't necessarily mean inflation will increase.  Where is the upside of gold?  Is there reason to think it isn't a decade or more from now?

If you think there is an upside in the near future, please explain the scenario to me.  Thanks.

To me, gold is generally a gauge on real interest rates.  I could see gold rising considerably if inflation started to kick in and rates stayed low, or maybe somewhat if long rates went back down closer to the 2.5% arena again.

Lowe wrote:
If you think there is an upside in the near future, please explain the scenario to me.  Thanks.

Nobody knows what the future will be
no matter how fervently we think or believe it will be.
That is the whole point of the PP.

(Hey, I just wrote a poem!)

LOL, and a great poem at that! Didn't we used to have a haiku thread?

@goodasgold

Yeah, I also didn't ask if anyone knew an upside.


@moda

Lately nominal rates have spent as much time rising as falling.  Lately being the past couple years.  I understand there is a bigger trend of falling rates, but at the moment the Fed is talking about raising rates.  There's no reason to think they won't try.

When that happens, what is the upside for gold?  There isn't a lot of inflation right now, and why would there be in the near term?  Are people going to start spending more money?

...

Frankly, I can't see much upside for gold inside a decade.  I don't expect inflation to increase, because I expect we are entering a deflationary slump that is going to last another decade at least.

I also don't see the Fed action as changing that, since what are higher rates going to do, anyway?  Encourage people to buy more treasuries at auction?  Are the high interest payouts supposed to convince the bondholders to spend more money?  I hope someone at the Fed is thinking this through, because all it's going to do to me in the meantime is tank 50% of my portfolio.

I'm not sure we've reached the bottom yet for gold.  I think we may be getting near a turning point in the markets, where we could see the bond/stock bubbles pop or at least start to deflate a bit.  In the short term that would likely pull gold with it (covering margin, general deflation of assets), especially if we see a major correction, so I'm thinking about rebalancing some of my recent stock/bond gains into cash near term, but that's a minor issue.

I've been debating this whole deflation vs inflation thing in my head for some time, and I think that given the peaks we're seeing in both stocks and bonds - the deflation scenario is most likely in the short term.  However, if the sound of the bubble popping is large enough to shake the foundations of the huge derivatives market (which is nearly 10x the size of the stock or bond markets) we could then see a series of ugly "loss of confidence" events (like we had in 2008) that could lead to trouble.

I'm not sure the second half will happen at all - we could just see a "normal" 10-20% correction in stocks/bonds (and probably gold) as assets return to more nominal values.  However, I think deflation of assets is more likely than inflation in the short term, so a bit of cash on hand may be good to have.

I agree with others that we're not likely to see high inflation due to growth, as the economy is still anemic.  Inflation in the US would more likely appear after a "loss of confidence" event (aka Argentina, Zimbabwe, Iceland, etc...), which means it would happen very quickly with little to no notice.  Gold is the ultimate insurance for this kind of unlikely event.

Which brings me back to the PP - it really does protect you well in just about any scenario. Don't try to out-guess or time the markets.  If you are getting close to a rebalance band (or just choose to rebalance once a year) then do the rebalancing.  At this point it would probably have you trading some bonds and stocks for cash and gold.  If you have more money to add - just add it to the PP and let it ride.

Lowe, I am curious about how you feel towards your LTTs (assuming you hold them) inasmuch as you see deflation as likely. Do you not see them as providing much of a cushion during a deflationary time?

Also, I agree with what mortalpawn said... that an inflationary event could happen really quickly and that we wouldn't necessarily see it coming.

If I follow the news closely, every time in history seems like the worst time. It's similar with financial markets right now where it just feels like something has to give. I just don't know what that something is.

I hold them.  They started to pay off this year, or at least get back into the black.  At least until the last couple weeks.  I don't know if it's been the Euro events, or talk about the Fed, but the LTT is off its peak.  If the Fed does raise rates soon, it will be worse.  Although this does raise the question of how much power they have.

...

H/e let us say the Fed does not try to raise rates any time soon.  In that case I am glad I have LTT, but not very.  The problem is that this slump is not that bad.  It just lasts a long time.  Inflation remains low, but not negative.  So my LTT interest is what, 1% over inflation?  1.5?

In order for my bonds to help me, I need a deflationary collapse.  I need a negative CPI, and a flight to safety among investors.  How can I expect that, though?  The stock market is humming along.  People are spending money, just not enough to increase the CPI beyond 2.5.

dualstow wrote: Strong dollar today.
Looking forward to buying more gold @ US$1200-1210 per oz.

Almost there...

I'm hoping to do a move from tax-deferred to taxable at a nice low price, and it looks like I'm going to get my chance.

Libertarian666 wrote: I'm hoping to do a move from tax-deferred to taxable at a nice low price, and it looks like I'm going to get my chance.

What do you mean? Why would I want a lower cost basis in a taxable account if gold starts to rise?

Libertarian666 wrote: I'm hoping to do a move from tax-deferred to taxable at a nice low price, and it looks like I'm going to get my chance.

Tech, Is your intention to just have less of your tax-deferred space taken up by gold?

buddtholomew wrote:

Libertarian666 wrote: I'm hoping to do a move from tax-deferred to taxable at a nice low price, and it looks like I'm going to get my chance.

What do you mean? Why would I want a lower cost basis in a taxable account if gold starts to rise?

Because when I take it out of my tax-deferred account the entire amount is taxable, whereas if I reinvest that in GTU (for example), any increase will be taxable at the LTCG rate.

So the lower the price is when I take the money out, the less tax I will pay overall.

Libertarian666 wrote:

buddtholomew wrote:

Libertarian666 wrote: I'm hoping to do a move from tax-deferred to taxable at a nice low price, and it looks like I'm going to get my chance.

What do you mean? Why would I want a lower cost basis in a taxable account if gold starts to rise?

Because when I take it out of my tax-deferred account the entire amount is taxable, whereas if I reinvest that in GTU (for example), any increase will be taxable at the LTCG rate.

So the lower the price is when I take the money out, the less tax I will pay overall.

Are you in the withdrawal phase? Liquidating a tax-deferred account prior to 59-1/2 is taxable at marginal rate + 10% penalty. Did you consider this in your calculations?

buddtholomew wrote:

Libertarian666 wrote:

buddtholomew wrote: What do you mean? Why would I want a lower cost basis in a taxable account if gold starts to rise?

Because when I take it out of my tax-deferred account the entire amount is taxable, whereas if I reinvest that in GTU (for example), any increase will be taxable at the LTCG rate.

So the lower the price is when I take the money out, the less tax I will pay overall.

Are you in the withdrawal phase? Liquidating a tax-deferred account prior to 59-1/2 is taxable at marginal rate + 10% penalty. Did you consider this in your calculations?

I am older than 59.5, so no problem there. And of course I have considered my marginal rate; this year I will not have much other income, so will have a fair amount of the 15% bracket left, since it goes up to about $77K taxable income for married filing jointly.

This detail would have been valuable to share in the original post as it explains the rational more clearly.

buddtholomew wrote: This detail would have been valuable to share in the original post as it explains the rational more clearly.

Sorry, I didn't realize I was being graded. 

dualstow wrote:

dualstow wrote: Strong dollar today.
Looking forward to buying more gold @ US$1200-1210 per oz.

Almost there...

Believe it hit US$1209 today.

How did you determine this price area? Can you explain this in a short sentence or two? Just curious...

I still haven't done my trade, but it looks like we will do it next week. The tax savings are looking pretty good at this point!

dualstow wrote: Strong dollar today.
Looking forward to buying more gold @ US$1200-1210 per oz.

ILoveMoney wrote: Believe it hit US$1209 today.
How did you determine this price area? Can you explain this in a short sentence or two? Just curious...

As Medium Tex would say, your crystal ball is as good as anyone else's.  Maybe gold'll fall further, but I'm due to rebalance.

dualstow wrote:

dualstow wrote: Strong dollar today.
Looking forward to buying more gold @ US$1200-1210 per oz.

ILoveMoney wrote: Believe it hit US$1209 today.
How did you determine this price area? Can you explain this in a short sentence or two? Just curious...

As Medium Tex would say, your crystal ball is as good as anyone else's.  Maybe gold'll fall further, but I'm due to rebalance.

Me as well. Earliest I can purchase is 10-17 to avoid a wash sale. Lifetime, I am down approximately 20% in this asset...I will not rest until it is recovered...

buddtholomew wrote:

dualstow wrote:

dualstow wrote: Strong dollar today.
Looking forward to buying more gold @ US$1200-1210 per oz.

ILoveMoney wrote: Believe it hit US$1209 today.
How did you determine this price area? Can you explain this in a short sentence or two? Just curious...

As Medium Tex would say, your crystal ball is as good as anyone else's.  Maybe gold'll fall further, but I'm due to rebalance.

Me as well. Earliest I can purchase is 10-17 to avoid a wash sale. Lifetime, I am down approximately 20% in this asset...I will not rest until it is recovered...

My understanding is that wash sale rules don't apply to "collectibles", such as GLD. Is that what you sold?

Libertarian666 wrote:

buddtholomew wrote:

dualstow wrote: As Medium Tex would say, your crystal ball is as good as anyone else's.  Maybe gold'll fall further, but I'm due to rebalance.

Me as well. Earliest I can purchase is 10-17 to avoid a wash sale. Lifetime, I am down approximately 20% in this asset...I will not rest until it is recovered...

My understanding is that wash sale rules don't apply to "collectibles", such as GLD. Is that what you sold?

IRS rule is unclear with respect to GLD. Vanguard will flag as a wash sale.

Is it unclear?  They tax it as a collectible, not as a security.

Xan wrote: Is it unclear?  They tax it as a collectible, not as a security.

Do you speak from experience?

1. Sell 1000 GLD 10/12
2. Buy 1000 GLD 10/13

Not a wash sale?