WSJ: Dow Falls in High-Speed Drop (1000pts before recovering a little).

[JMS]

I would argue in that case, though, that gold is a bad investment, because the longer you hold it, the more likely it will revert to what it is, a negative real return. As I have already said, if inflation protection is your goal, I much prefer TIPS.

And I would argue that in times of economic instability, Gold is always a good investment.... In inflationary times, which we are heading into now; gold is always a good investment. When the instability is over, and inflation is under control again; that's when I will think about getting out. I don't see the instability as doing anything but accelerating.

• The European Bandaid isn't going to hold. Not without addressing the problem of no central authority over their financial system.
  
• The United States still hasn't addressed any of the fundimental problem issues which drove us into collapse, and the way the GOP and Dems are playing meaningful reform is unlikely.
  
• The Chinese economy grew at 11% last year.... Which is pretty good until you figure out 80% of their economic growth is based on their own realistate bouble... That's going to blow up shortly. Especially if the global economy continues to stagnate.
  
• Japan is still not recovered from the 90's fully, and she's never shown the willingness to run the type of massive deficites to actually be an economic engine for the world like the US and to a lesser extent the EU.
  

All these things work as pistons in the great instability engine which we find ourselves in.... Until the governments actually start fixing some things, gold will continue to go up.

[JMS]

Have you ever thought about selling your gold and buying land? That's a much better investment and hedge against "holy ****" times... especially as low as the market is right now.

I bet you could buy an acre or two (buildable site) in appalachia for $10k.

Gold is a much more liquid asset than land. You also don't get taxed on Gold. You've got your 90 day cash reserve... after that you've got your gold reserve.... After that you've got your longer term investments like realistate..

I agree with GibbsFactor, I buy bullion and just leave it in the safe deposit box. If I needed to access it there are a half a dozen buyers within 10 miles of my house.

[GibbsFactor]

Have you ever thought about selling your gold and buying land? That's a much better investment and hedge against "holy ****" times... especially as low as the market is right now.

I bet you could buy an acre or two (buildable site) in appalachia for $10k.

Yes, thought of it. Not sure I'm ready to maintain it though.

My favorite quote from Lex Luthor 1978:

Land, it's the one thing they aren't making more of.

I do have access to a big farm down in southwest VA and would want something similar to keep in my family (currently my sisters husbands family's land).

[Ken]

Wonder what happens when they figure out a trillion dollar slush fund isn't enough? Or the trillion dollar slush fund doesn't change the underlying problems in the European market...

Guess we find that out today, the FTSE, CAC and DAX are all down 1-2%.....

Gold up $20 again..... $1220/oz in early tradeing..

Gee I wonder what's going to happen when the knee jerk investors figure out the Chinese economy is on the verge of tanking? (10-12 months out)... Wonder what that's going to do for stability and the international economic markets. Or the price of Gold.

Agreed.

You can add Great Britain, Spain, Portugal, Italy, and a number of other countries to your list.

When they start going, there is nothing that is going to stop this spiral.

Gold is a great investment. It is the only vehicle that will outlast the impending monetary implosion.

[SkinsHokieFan]

Have you ever thought about selling your gold and buying land? That's a much better investment and hedge against "holy ****" times... especially as low as the market is right now.

I bet you could buy an acre or two (buildable site) in appalachia for $10k.

I got 2 plots of land in Crossville TN

[JMS]

Agreed.

You can add Great Britain, Spain, Portugal, Italy, and a number of other countries to your list.

When they start going, there is nothing that is going to stop this spiral.

Gold is a great investment. It is the only vehicle that will outlast the impending monetary implosion.

I don't see an end of the world type scenario.... The EU as a composite has a pretty decent debt to gdp ratio; it's just some of the member states which are in trouble.

What I do see is continued instability and continued need for economic bail outs all of which will send investors scurrying around for decent investment vehicles. I also believe all the money being borrowed, pumped and thrown around to the banks is going to have an inflationary effect eventually... That will also prop up gold prices...

What is driving gold prices up to unprecidented and sustained levels is the emergence of the Chinese and Indians..... Those people love gold... They preffer to keep a high percentage of their savings in gold. The question you have to ask yourself, Is that going to change or get more pronounced as more wealth flows into these emerging economies?

[zoony]

I got 2 plots of land in Crossville TN

really? some great golf courses there. I'm thru there quite a bit, let me know if you need me to stop by and let you know how they're doing

[Predicto]

This question just occured to me:

If gold is such a great investment, why do gold dealers sell it to you, rather than just hold on to it for themselves? Presumably they know better than anyone its real value and how it is likely to perform in the near future. Why are they handing over those potential profits to you?

I'm guessing that the answer to this question is obvious, but I don't see what it is.

[boofMcboof]

This question just occured to me:

If gold is such a great investment, why do gold dealers sell it to you, rather than just hold on to it for themselves? Presumably they know better than anyone its real value and how it is likely to perform in the near future. Why are they handing over those potential profits to you?

I'm guessing that the answer to this question is obvious, but I don't see what it is.

This can't be a serious question for someone as intelligent as you. It's a commodity for which there is exists a demand. Why do brokers and middlemen exist? To profit by connecting the end buyers and sellers.

I've been reading up on gold from a lot of sources and I've enjoyed Martin Armstorng's viewpoint the most. He has a very well rounded observational view of gold and it's place in Amercian history. I encourage everyone here to read it.

http://www.martinarmstrong.org/files/GOLD-5000-11-11-09.pdf

Some points he makes:

• Gold is not a hedge on inflation it's a indicator of confidence in government. In other words a hedge against political mismanagement.

• A monetary gold standard would be foolish

• Gold uniquely serves as a global financial commodity. It serves as the same thing in all countries and has been doing it for thousands of years.

How much credence you give to Martin Armstrong is up to you.

[Predicto]

This can't be a serious question for someone as intelligent as you. It's a commodity for which there is exists a demand. Why do brokers and middlemen exist? To profit by connecting the end buyers and sellers.

I understand why middlemen exist.

According to several people in this thread, it is obvious that gold is going to go up in value in response to global financial insecurity.

If this is so, then why are the insiders in the gold biz (the fat cats who own gold currently) willing to sell off their gold to mom and pop investors like JMS? Presumably those guys know, even better than JMS, what gold is likely to do in the near future. Why are they forsaking those sure profits?

[McD5]

Great call on the long gold position.

New year highs.

We have no other choice but to hyper-inflate this economy, or we are going under.

[boofMcboof]

I understand why middlemen exist.

According to several people in this thread, it is obvious that gold is going to go up in value in response to global financial insecurity.

If this is so, then why are the insiders in the gold biz (the fat cats who own gold currently) willing to sell off their gold to mom and pop investors like JMS? Presumably those guys know, even better than JMS, what gold is likely to do in the near future. Why are they forsaking those sure profits?

Sorry, I guess I don't understand your question. I assumed you were talking about gold dealers like Kitco or Apmex.

[JMS]

This question just occured to me:

If gold is such a great investment, why do gold dealers sell it to you, rather than just hold on to it for themselves? Presumably they know better than anyone its real value and how it is likely to perform in the near future. Why are they handing over those potential profits to you?

I'm guessing that the answer to this question is obvious, but I don't see what it is.

The answer is not difficult.

(1) Gold dealers don't know anybetter than anybody else what gold prices are going to do.

(2) Gold dealers sell gold because that's their business... They get paid on the margine.... Oil prices were constantly going up in 2006, but oil companies still sold oil? That didn't reflect negatively for folks intested in buying oil futures..

The oil companies made record profits selling oil that year. That's their business. Nobody said oil futures are a bad investment because the oil companies are selling them rather than hoarding them...

[JMS]

I understand why middlemen exist.

According to several people in this thread, it is obvious that gold is going to go up in value in response to global financial insecurity.

"Obvious", is a little strong. I would catergorize it as several people including myself are saying gold is still a good buy. Knowing we have nothing to gain or loose by your choice and knowing we likely have the investment credentials of a service waiter to advise you.....(speeking for pressent company).

Which doesn't make us wrong.

If this is so, then why are the insiders in the gold biz (the fat cats who own gold currently) willing to sell off their gold to mom and pop investors like JMS?

I preffer fat cat, micro investor thank you very much..... Seriously though... It's not necesarily the big boys who are selling. It's the small investers who are making 1-800-buy-gold, and all these mail order gold sales places profitable enough to take out adds on super bowl sunday which are suppying most of the gold. Gold goes up to 1200/oz and their are lots of folks lining up to sell their jewlry and chochkey regardless of what Gold promises to do in the future.

Presumably those guys know, even better than JMS, what gold is likely to do in the near future. Why are they forsaking those sure profits?

Evidently not, because they sold their gold and JMS has bought and held his gold now for more than a decade.... Seeing as Gold is currently at record highs 6x what I paid for it, and up again today, evedently ole JMS knows a littlle better than they do which way gold was likely to go.

Seriously though your premise is wrong.... Gold dealers aren't the ones to ask about future values of gold.... They get paid to buy and sell not to hold or invest. To them if you are selling, it's a good time, If you are buying, it's still a good time. They need both to make money. Their margin is built in. The professionals who know about the gold markets are the analysts, and frankly like any analysts if you look long enough you will find two with different oppinions. Knowing who to listen to is key... I'm certainly not a gold analyst...

I wouldn't listen to me. I'm just an opinionated guy doing the churchladdy superior dance on the ole board... My personal investment history is full of dramatic sucesses, and failures... It's kind of how I roll. I believe gold will continue to advance, I also believe at some point it will receed.

The way I protect myself is by diversification. I wouldn't put all my eggs in one basket.

[Predicto]

Fair enough. Again, not trying to knock your decisions.

I have done pretty damn well with my "buy, hold and occasionally sell a stinker" stock strategy over several decades. I don't claim to know that much about the markets either. I just know that the dividends keep coming in, and I keep reinvesting them.

[boofMcboof]

I will say that gold dealers use fear mongering to try and generate more sales.

[techboy]

And I would argue that in times of economic instability, Gold is always a good investment...

Since I know you care very much about my judgement on this issue, I hereby declare this market timing. You have held a relatively long time, yes, but you are doing so because you have predicted that future events regarding government instability will unfold in a certain manner, and that gold will react in a certain way. You will unload when that assessment changes. You are attempting to time the market.

I have no idea if you are right or wrong. Apparently you were right before, but that doesn't mean you will be in the future. I hope it works out for you.

What I do know is that everybody that tries to time the market thinks he knows what's going to happen. Many call it "obvious".

And yet, research shows that market timing is a suboptimal strategy.

If this is so, then why are the insiders in the gold biz (the fat cats who own gold currently) willing to sell off their gold to mom and pop investors like JMS? Presumably those guys know, even better than JMS, what gold is likely to do in the near future. Why are they forsaking those sure profits?

This is an incisive question. Even more on point, the markets move largely due to the actions of financial experts at big trading houses, mutual funds, and the like. If it's so obvious gold is going up, why aren't they buying now?

Why pass up an obvious screaming buy and miss out on the easy money?

If market timing ever works via skill and not luck (and I'm extremely skeptical), it won't be based on information that is so widely available.

Everybody knows that the Eurozone is in trouble. Everybody knows that the U.S. is spending like crazy.

I have to think that all of the things that people are talking about in this thread are already priced in, more or less.

The professionals who know about the gold markets are the analysts, and frankly like any analysts if you look long enough you will find two with different oppinions.

This is what I'm getting at. The people who are supposed to be the experts can't agree, and they have all the information you do (and probably more, unless you're a professional trader).

My personal investment history is full of dramatic sucesses, and failures... It's kind of how I roll.

Well, I hope you have many more successes than failures.

[GibbsFactor]

Fair enough. Again, not trying to knock your decisions.

I have done pretty damn well with my "buy, hold and occasionally sell a stinker" stock strategy over several decades. I don't claim to know that much about the markets either. I just know that the dividends keep coming in, and I keep reinvesting them.

I don't think people are just invested in Gold. I don't understand the negativity about owning gold. It will most likely never be $600 an ounce again. Why not have some commodities in your portfolio?

This is an incisive question. Even more on point, the markets move largely due to the actions of financial experts at big trading houses, mutual funds, and the like. If it's so obvious gold is going up, why aren't they buying now?

Why pass up an obvious screaming buy and miss out on the easy money?

I thought it was pretty "obvious" and I'm sitting at 100%+ in 3 years. :whoknows:

[techboy]

I have done pretty damn well with my "buy, hold and occasionally sell a stinker" stock strategy over several decades. I don't claim to know that much about the markets either. I just know that the dividends keep coming in, and I keep reinvesting them.

Interesting you should mention dividends. Professor James Hamilton at UC San Diego weighed in on the main topic of this thread a couple of days ago, with Staying sane in a crazy market, and he mentioned dividends.

First, he talked about the market timing approach to evaluating stocks:

One view was articulated by John Maynard Keynes on page 156 of his General Theory:

professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgement, are really the prettiest, nor even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practise the fourth, fifth and higher degrees.

Of course, there's another option, he notes:

Is there an alternative interpretation of what gives a stock value, apart from what others think that others think it might be worth? Most assuredly there is, and the easiest way to understand that value is to contemplate buying a stock with the intention of never selling it, simply passing it on to your heirs, and from them to their heirs. Is the asset, if used in this way, of any benefit to you? Sure is, because even if you never sell the stock, you and your heirs can expect to receive a dividend payment from the company four times a year as long as the company stays in business. Those dividend payments will grow if the company's earnings grow over time. Even for a stagnant company that sells exactly the same number of units each year, in an inflationary world the dollar prices of those goods (and therefore the number of dollars you receive in dividend payments) should grow over time.

Holding a stock forever based on its intrinsic value, represented by dividends? Crazy!

A bit on how silly the selloff was:

Let's take a look at one of the amusing examples of trading on Thursday. Exelon is a perfectly sound utility. The stock started and ended the day at about $42, yet at one point allegedly changed hands for a penny a share. If you are the owner of 100 shares of this stock on Wednesday May 12, the company will send you a dividend check for $55. They'll send you another $55 (and likely eventually even more) every 3 months thereafter, as long as you own the stock. What rational person would possibly prefer to have $1 on Thursday May 6 in preference to owning 100 shares of the stock, say, for at least another week?

No sane person ever would. I wonder how many of the sell orders came not from actual humans, but instead from instructions programmed to execute automatically by computers. Anybody following such a strategy is obviously not a subscriber to my theory of fundamental value, but instead seems to be playing Keynes' beauty contest game, having persuaded themselves, based on the historical correlations, that when the crowd starts to sell, if you can instruct your computer to sell at the "market price" faster than a human can even think, you'll come out ahead.

Another interesting bit:

Economists and financial engineers seem to approach stock markets differently. The financial engineers often see the game as figuring out whatever the historical predictability has been and trying to get ahead of it. Economists tend to ask what the equilibrium in the market would look like if everybody played the game the way the financial engineers do. The answer to that second question is, if momentum-chasing algorithms come to rule the financial world, those who try to follow them will be the biggest losers.

Emphasis mine. Hmmm... One thing I have noticed that McD5 and Westbrook36 especially pump is stop loss orders, to make everything all better. Well...

Another notion that's popular with many financial gurus these days is the claim that you can eliminate certain risks to your portfolio with the right strategy of automatic trading and stop-loss sell orders. Again that claim invites an economic question-- if you are getting an insurance policy, who is selling it to you? I believe the implicit answer is, you are counting on the market-maker to insure you by taking the other side of your escape transactions. But the curious thing about such an insurance policy is that the market-maker gets to decide what premium to charge you after you ask to collect on the policy. You just might find that the state of the world when you and your buddies all most desperately want to cash in on your insurance is exactly the time when the premium proves to be ruinously expensive.

Thought I'd emphasize that one. There are no free lunches in investing.

And final thoughts...

And my advice for sane humans trying to deal with such a crazy market is this: as a first step, ignore all the other beauty-contest judges, and ask yourself whether the flow of future dividends you expect to receive by itself would be adequate compensation to you for your investment, given the risk associated with not knowing exactly what those dividends are going to be.

If it is, then allow yourself to relax as the computer programs written by the other contest judges try to devour each other.

If it's not, then you're in the wrong place at the wrong time.

[Predicto]

I don't think people are just invested in Gold. I don't understand the negativity about owning gold. It will most likely never be $600 an ounce again. Why not have some commodities in your portfolio?

Because commodoties don't work to increase their value like equities, and they don't pay dividends like equities, and they don't pay interest like debt investments. All I get with a commodity is a "thing," a thing which might go up in value and might go down in value. And the guy I bought it from thinks the exact opposite from what I think about its future value, because that is why he sold it to me.

I thought it was pretty "obvious" and I'm sitting at 100%+ in 3 years. :whoknows:

Yes, and the guy who bought gold in 1980 also thought it was pretty obvious that it was time to do so right then, and he was at negative 60% return after fifteen years. :whoknows:

I'm glad you were successful, but I don't think it demonstrates the correctness of the strategy.

[techboy]

I don't think people are just invested in Gold. I don't understand the negativity about owning gold. It will most likely never be $600 an ounce again. Why not have some commodities in your portfolio?

There actually are some compelling reasons offered by some financial experts I respect, such as Larry Swedroe, to hold a small portion of commodities in one's portfolio. If I went that route, though (and I don't), I'd hold a broader index of commodities (including energy, food, etc.), not just gold.

I've already mentioned my problem with gold itself so many times I won't repeat it. People that buy it are generally looking for a speculative return, not an investment return.

I thought it was pretty "obvious" and I'm sitting at 100%+ in 3 years. :whoknows:

I'm happy for you (really... not sarcasm). As I see it, there are 3 reasonable explanations for how you outperformed all those pros:

1. You had information they didn't.

2. You had the same (or less) information, but you are much smarter and more skilled than all of them.

3. You got lucky.

Don't confuse strategy with outcome.

[GibbsFactor]

Because commodoties don't work to increase their value like equities, and they don't pay dividends like equities, and they don't pay interest like debt investments. All I get with a commodity is a "thing," a thing which might go up in value and might go down in value. And the guy I bought it from thinks the exact opposite from what I think about its future value, because that is why he sold it to me.

I thought that's the exact reason to diversify.

Yes, and the guy who bought gold in 1980 also thought it was pretty obvious that it was time to do so right then, and he was at negative 60% return after fifteen years. :whoknows:

I'm glad you were successful, but I don't think it demonstrates the correctness of the strategy.

I tend to side with buy and hold but when something seems like a sure thing, I roll the dice. Even buy and hold has inherent risk. As long as you aren't playing with house money, I say roll the dice. You can't earn enough money in life, you have to make it.

[techboy]

Because commodoties don't work to increase their value like equities, and they don't pay dividends like equities, and they don't pay interest like debt investments. All I get with a commodity is a "thing," a thing which might go up in value and might go down in value. And the guy I bought it from thinks the exact opposite from what I think about its future value, because that is why he sold it to me.

To be fair, depending on which investment professional one follows, there might be a place for commodities as a whole as a hedge against inflation, as well as a non-correlated asset that can improve overall portfolio returns in small amounts. (See here and here for a debate on the issue, though I side with Ferri).

[Predicto]

I thought that's the exact reason to diversify.

Sure, I guess. But if I want to be in the food sector, I would rather own stock in Heinz (a company that produces food for a profit) than own a bunch of bushels of Tomatoes. If you think gold is likely to go up, why not buy stock the best gold mining company you can find? Then you get the advantage of your assumption that gold is on the rise, plus the other advantages of owning an equity rather than a "thing"?

I tend to side with buy and hold but when something seems like a sure thing, I roll the dice. Even buy and hold has inherent risk. As long as you aren't playing with house money, I say roll the dice. You can't earn enough money in life, you have to make it.

I do roll the dice on individual stocks. Sometimes they go up, sometimes they go down, same as gold does. But people who only pay attention to the stock or commodities price tend to ignore the dividends stocks also pay. I make thousands in dividends every year, which get reinvested and really boost my long term return.

[McD5]

Sure, I guess. But if I want to be in the food sector, I would rather own stock in Heinz (a company that produces food for a profit) than own a bunch of bushels of Tomatoes. If you think gold is likely to go up, why not buy stock the best gold mining company you can find? Then you get the advantage of your assumption that gold is on the rise, plus the other advantages of owning an equity rather than a "thing"?

Commodities have a few big advantages over stocks. I would suggest reading Jim Rogers if you are interested in learning more about them. Here are a few of the reasons he cites in his book, Hot Commodities.

1. Stocks can go to zero, commodities cannot. Unlike stocks, commodities are real things that are likely to be worth something to somebody.

2. Commodies offer no credit risk.

3. Some like their negative correlation to stocks, bonds, and other financial instruments. Many "financial planning experts" will tell you that if you are not investing in them, you are not truly diversified.

And probably the biggest reason why they are often less risky than stocks--

4. Simple supply and demand.

Supply and demand will move the price of copper. While the share price of Phelps Dodge, America's largest traded copper company, will depend on many more factors like the overall condition of the stock market, the company's balance sheet, it's executive team, labor problems, enviromental issues, and other factors. A very sticky situation.

The price of copper can fly, but bad management in a company can keep you from making profit.

Yale did a study that found from 1962-2003, "the cumulative performance of commodities has been triple the cumulative performance of matching equities."

Dividends are about the only advantage to even consider buying the stock over the commodity. It is just up to each person to decide whether the extra risk, for historically much lower returns, is worth it for some reason.

With taxes expected to increase on dividends, that probably becomes even less attractive than straight commodities.

The real question then becomes, why on earth would anyone prefer investing in the companies, rather than the underlying commodities? The answer is usually because some friend at their office told them they were risky, or from just never learning about them.