Gyroscopic Investing

Anyone have any predictions as to how high gold's going to get (and by when)?

I'm seeing it recommended more and more in the financial media, and it's making me wonder how much longer the bull market has left.

All just for discussion...

I posted this a little over a year ago:

http://www.bogleheads.org/forum/viewtop ... light=gold

I'm sticking by my target range of $5,000-$8,000 between 2013-2015. The final gold price is a moving target and can't be forecast accurately because it hinges on too many future decisions by many people.  There are metrics that will let you know when gold is "in the ballpark" but an exact price is impossible.  I think $2500 is nearly guaranteed.  $5,000 is highly likely.  $7500 is my best guess if I had to choose a number and $10,000+ is absolutely possible and not pie-in-the-sky fantasy.

All I know is stocks are still too expensive and gold is too cheap (in the long run even if overbought at the moment).  I can't make any guesses on the bond market.  I'll leave that to MT (who's pretty darn good at it).

Wonk wrote: I posted this a little over a year ago:

http://www.bogleheads.org/forum/viewtop ... light=gold

Here's Rick Ferri's post from that discussion:

Year-to-date through June 30, SPDR Gold Shares (GLD) took in $7,682 MM in new assets. That's about 20% of all new supply mined for the year. Over $2,334 MM came in during June alone, which is about triple the amount of gold mined globally that month. Total asset are now over $52 billion. That's more than 7 months worth of total global production.

Don't be near the door when the dam breaks!

Rick Ferri

Glad to see Rick still loves gold...

Nonetheless, I can't help wonder if there's some truth to his argument.  Why are you so optimistic?

Adam1226 wrote:

Wonk wrote: I posted this a little over a year ago:

http://www.bogleheads.org/forum/viewtop ... light=gold

Here's Rick Ferri's post from that discussion:

Year-to-date through June 30, SPDR Gold Shares (GLD) took in $7,682 MM in new assets. That's about 20% of all new supply mined for the year. Over $2,334 MM came in during June alone, which is about triple the amount of gold mined globally that month. Total asset are now over $52 billion. That's more than 7 months worth of total global production.

Don't be near the door when the dam breaks!

Rick Ferri

Glad to see Rick still loves gold...

Nonetheless, I can't help wonder if there's some truth to his argument.  Why are you so optimistic?

Any time Rick Ferri opens his mouth about gold I am reminded that a stopped clock is right twice a day.

At some point, I think it would be wise to just say: "you know, gold is a market that I don't understand all that well, and therefore I'm not going to comment on it."

Adam1226 wrote:
Nonetheless, I can't help wonder if there's some truth to his argument.  Why are you so optimistic?

Here's an excellent response from brick-house in response to Rick's statement that appears further down that same thread:

brick-house wrote: Keep on guessing - eventually you will be right. For someone who markets himself as "the" expert on asset allocation, it is amazing how big your blind spot is on gold. Don't you think there is a place for a gold allocation in a diversified low cost portfolio that has disciplined re-balancing bands? Suggestion for your reading list: Fail-Safe Investing by Harry Browne.

Did you warn the thoughtful stock-bugs about the "dam" breaking during 2000 and 2007?

Rick Ferri wrote: I am not tooting my own horn here, but 20 years doing research on asset allocation, 5 books in low cost investing and asset allocation, dozens of articles, thousands of correlation studies, after a attaining a CFA, a MS in finance, and a whole bunch of other stuff that I forgot, I really do not need to do 'research' on a portfolio that has 4 simple asset classes.

I call it voodoo because it is. I KNOW what the results are, and know WHY the results WERE that way in the recent past, and WHY it is pure speculation and complete wishful thinking that the results will come anywhere close to those returns in the future. The nation can only come off the gold standard once. It does not happen twice. Good luck!

Rick Ferri

PS. Since you are speculating in returns, here is my speculation. Gold is in a huge bubble due to gold ETF buying by retail investors (dumb money chasing returns and incredible hype in the media). I speculate that gold will drop below 700 per once by 2010, and below 500 per once by 2011.

500 by 2011?  Ouch.  I'm glad he made that prediction because it shows he knows absolutely nothing about gold.  He's like a lawyer telling you how to perform open heart surgery.  It sounds plausible and from an intelligent source, but in the end he just stayed at a Holiday Inn Express last night.

Here's the thing: there's only one reality and two options for that one reality.  The reality is that asset prices are too high and need to crash back not only to fair values, but some form of below-market value before prosperity can begin again in earnest.  The options are:

1. Crash hard (30s)
2. Crash soft (70s)

Since we have a non-convertible currency(unlike the 30s), the path of least resistance is to debase the currency and crash softly.  Can some black-swan event come along and blow up the gold price?  Sure!  That's the risk we take when we speculate.  Maybe someone finds a bazillion tons of gold next to Jimmy Hoffa or a cold fusion breakthrough allows us to make gold from seawater for a penny an ounce.  Whatever it is, it would surely dash my vision of gold's future.

That said, I'm fine making the bet that a scenario like the above won't happen--even if it is mathematically possible.

Wonk,

I remember that quote from Ferri above.  

The sophistication of his market outlook speaks for itself.

I'm surprised that such a myopic view of the world and markets is all he got for his CFA, MS and the rest of his trophy case of credentials.

I once interviewed a guy who had one of those endless string of credentials.  This guy was a JD, LLM, MBA, PHD.  I'll never forget the following line on his resume describing his time as a real estate analyst.  It said: "Single-handedly kept finger on pulse of local real estate market."

As I read that I thought to myself: It only takes one hand to do that.  In fact, it just takes one finger.

Wonk wrote: It sounds plausible and from an intelligent source, but in the end he just stayed at a Holiday Inn Express last night.

Ahahaha!

Such a smart, funny group here.

I regret that in the past, I bought a book or two of Ferri's. They are long gone (things have to earn their keep around here), and that's not going to happen again.

I did just order "Hard Money: Taking Gold to a Higher Investment Level" by Shayne McGuire.

Probably a waste of money, 97%+ of all books on investing I've bought have been.

I shall report.

I too vividly remember Mr. Ferri's remarks.  IIRC in that thread were many of his supporters casting aspersions at the mere ownership of gold when used in the context of the PP.  I see very few threads over there regarding gold anymore.  I often wonder why??

Liz L. wrote: I regret that in the past, I bought a book or two of Ferri's.

Rick's book "All About Asset Allocation" is actually very good. The funny thing is that the PP is
basically the embodiment of the asset allocation theory that he presents.  I can't figure why he's
so adamantly opposed to it.

Adam1226 wrote: I can't figure why he's so adamantly opposed to it.

Maybe because it isn't necessary to pay an advisor or buy investment books if you use the PP strategy.

I always loved this quote:


"It is difficult to get a man to understand something when his job depends on not understanding it."
      -Upton Sinclair (1878 - 1968)

MediumTex wrote:

Adam1226 wrote: I can't figure why he's so adamantly opposed to it.

Maybe because it isn't necessary to pay an advisor or buy investment books if you use the PP strategy.

I'm sure there's some truth to that.  The thing is, it doesn't take a financial advisor to put 50% of your money in VTI and 50% in BND and rebalance once a year either (which is essentially what his book boils down to, unless I'm confusing it with one of Bernstein's).

6 Iron wrote: I always loved this quote:


"It is difficult to get a man to understand something when his job depends on not understanding it."
       -Upton Sinclair (1878 - 1968)

That is a great quote.  I think this is the cause of a lot of the weird stuff that goes on in the world. 

Adam1226 wrote:

6 Iron wrote: I always loved this quote:


"It is difficult to get a man to understand something when his job depends on not understanding it."
       -Upton Sinclair (1878 - 1968)

That is a great quote.  I think this is the cause of a lot of the weird stuff that goes on in the world. 

People often think firmly and inflexibly within paradigms without realizing that history is the process of one paradigm displacing another as the assumptions on which each paradigm is premised are invalidated.

Paradigm succession is sort of like the process of a snake molting, except when society does it there is a residue of experts, bureaucrats and wizards left behind who cling desperately to the credibility that their obsolete paradigm provided them with.

Liz L. wrote:
I did just order "Hard Money: Taking Gold to a Higher Investment Level" by Shayne McGuire.

Probably a waste of money, 97%+ of all books on investing I've bought have been.

I shall report.

Liz, in your book report, can you somehow work in more Star Trek dialog? That was fantastic.

I believe I can deliver on that front.

This is getting a little scary (for those not in a PP).

S&P Futures have been dropping since the 4pm close...

http://finviz.com/futures_charts.ashx?t=ES&p=m5

and of course, gold is still rising.

Gumby wrote: This is getting a little scary (for those not in a PP).

S&P Futures have been dropping since the 4pm close...

http://finviz.com/futures_charts.ashx?t=ES&p=m5

and of course, gold is still rising.

What we need right now is a hero...

MediumTex wrote:What we need right now is a hero...

Interestingly enough, the S&P is now at the levels at which Bernanke introduced QE2 with his Jackson Hole speech. We're right back where we started.

Gumby wrote:

MediumTex wrote:What we need right now is a hero...

Interestingly enough, the S&P is now at the levels at which Bernanke introduced QE2 with his Jackson Hole speech. We're right back where we started.

But just look at all the fun we've had...

Bernanke lends his expertise to the aircraft industry:

...Well, I don't think this is a particularly good sign for the state of things. But there is chatter that we might see $2000 gold by Friday if QE is mentioned by the Bernank tomorrow.

Gold is now hovering near 1770 as the anticipation builds.

MediumTex wrote: Bernanke lends his expertise to the aircraft industry:

That is brilliant!

Should be interesting what kind of Fedspeak we hear this afternoon and how the market might react.  Gold looks to be overbought in the short term--about 20% over it's 200d moving average.  This is the area we've seen corrections & consolidations in the past. 

Also, even though the U.S. market has been hammered recently, I get the impression the panic is largely still concentrated in Europe.  Between the ECB/Italy/Spain/Greece issue, London riots, etc, it looks like Europe is having a tougher time at the moment than we are.  I would imagine the high inflation in Asia and the jitters in Europe have much more to do with gold's price at the moment than domestic U.S. buying. 

Too bad, Bernanke is still sleeping off the hangover from his bender:

http://www.theonion.com/articles/drunke ... hoo,21059/