Beware the gold bubble
Arizona Coin Collector
The link below has a nice video. Take it for what
it is worth. I like gold a a pretty shinny metal
made into coins myself.
--------------------------------
FROM:
http://money.cnn.com/2009/10/06/pf/gold_investing_bubble.fortune/index.htm?postversion=2009100612
Beware the gold bubble
The run-up in price to more than $1,000 an ounce has
investors excited. But market fundamentals point to
a decline.
By Scott Cendrowski, reporter
Last Updated: October 6, 2009: 12:01 PM ET
NEW YORK (Fortune) -- Signs of gold fever are everywhere.
TV commercials scream, "Sell your baubles, prices are
reaching the sky!" Investors have poured more than $12
billion this year into SPDR Gold Trust (GLD), the big
exchange-traded fund.
Top-ranked manager John Hathaway of the Tocqueville
Gold Fund (TGLDX) offers this astounding prediction: The
price of the precious metal could rise to more than
$5,000 an ounce.
And if that's not enough to convince you, gold futures
for December delivery rose $27 to an intraday record
high of $1,045 an ounce in New York trading Tuesday.
But amid the buying frenzy and after a decade-long
run-up that has seen the price quadruple, is gold
still a smart investment? The simple answer: Wherever
the price of gold is headed in the long term, several
market watchers say the fundamentals indicate that
gold is poised to fall.
And even if you fret that the government's
pullout- all-stops effort to rescue the financial
system and revive the economy will lead to inflation,
there are better hedges than the yellow metal.
Gold has moved in huge swings since the economy
started to crack in 2007. The price closed above
$1,000 for the first time on March 14, 2008, just
before Bear Stearns was sold to J.P. Morgan
(JPM, Fortune 500), then fell to near $700 last
November before rising again past $1,000 last
month.
Bulls argue that gold still has more to gain: As
the national debt balloons, the result is bound
to be a weaker dollar and higher
inflation -- both traditionally bullish for gold.
Jim Rogers, the investor who predicted the
commodities boom earlier this decade, expects
gold to pass its inflation-adjusted 1980 peak
of $2,312.
"Gold is going to be much higher over the course
of the bull market, in a decade or however long
it lasts," he says. Rogers, who in the past has
criticized the Federal Reserve for being lax on
inflation, considers gold the ultimate safe haven
in times of financial stress. But he thinks other
commodities trading far from their all-time
highs -- cotton and lead, for example -- might
offer better returns, along with inflation
protection.
Hathaway, who manages $1 billion at the Tocqueville
fund, sees gold soaring for several reasons,
including rising inflation and the rather curious
fact that in two previous instances the price of
an ounce of gold and the level of the Dow Jones
industrial average have come close to converging.
In 1933, when gold traded at $32 an ounce, the
Dow bottomed out at 50 in February. In 1980 gold
climbed to its high of $850 on Jan. 21, when the
Dow closed at 873. Today Tocqueville sees
something similar happening, with gold rocketing
to $5,000 or $10,000 an ounce (the Dow is now at
about 9700).
Those projections are tantalizing. But when you
look at supply and demand, gold loses some of its
luster. Gold miners have poured more than $40
billion into new projects since the bull market
began in 2001, according to Montreal-based bullion
dealer Kitco. Like Big Oil explorations started
earlier this decade amid rising energy prices,
new gold projects are now bearing fruit.
Mining output was up 7% in the first six months
of 2009, after several years of declines, as China,
Russia, and Indonesia have ramped up production.
Kitco predicts that new mining will add 450 tons
annually, or 5%, to the gold supply through 2014,
enough to move prices lower.
On top of that, $1,000 gold brings out gold scrap
sellers. In the first half of 2009 alone, high
prices attracted 900 tons of gold jewelry, old
coins, and other scrap. Industrial and jewelry
demand, meanwhile, has fallen 20% in the past
year, according to GFMS, a precious-metals
research group.
Kitco analyst Jon Nadler says gold is setting record
prices amid "some of the poorest fundamentals I've
seen in the market for a long time." He suspects the
recent rise has been driven by large hedge funds and
institutional investors making momentum-driven
trades. As for fears of financial collapse, "The sky
did actually fall last year -- and it was good for
$1,035 gold," says Nadler. "But that's about where
the worst ends."
So the short-term outlook is not promising. But what
about long-term protection against inflation?
Money manager Rob Arnott, chairman of Research
Affiliates, whose strategies are used to manage
$43 billion in assets, believes the inflation rate
could climb above 5% in two to three years and that
investors should dedicate a quarter to a third of a
portfolio to inflation protection.
But he's not a fan of gold, which, he says, basically
tracks inflation over the long term, leaving you a
loser after taxes. "Gold is not a sensible core
holding," he says.
Like Rogers, Arnott thinks common commodities are a
smarter choice. He suggests iShares GSCI (GSG), an
ETF that tracks the broad S&P commodities index.
Arnott also likes using Treasury Inflation- Protected
Securities, real estate investment trusts
(REITs), and emerging-market bonds, which you can
buy through the PowerShares Emerging Market Sovereign
Debt ETF (PCY). Many developing countries are
commodities producers, so if U.S. inflation kicks in,
their currencies will gain strength and their debt
will rise in value.
First Published: October 6, 2009: 11:46 AM ET
..
dlhii
indicators:
18 oz silver = 1 oz gold
15 barrels of oil = 1 oz gold.
So (omg) $5000/oz gold would be $333 barrel oil.
oly
> There are some ratios around, historic, which could only be possible
> indicators:
> 18 oz silver = 1 oz gold
> 15 barrels of oil = 1 oz gold.
>
> So (omg) $5000/oz gold would be $333 barrel oil.
>
> "Arizona Coin Collector" <nos...@nospam.com> wrote:
>
>
>
> >Hello
>
> >The link below has a nice video. Take it for what
> >it is worth. I like gold a a pretty shinny metal
> >made into coins myself.
>
> >--------------------------------
>
> >FROM:
>
> - Show quoted text -
Just off-hand, I believe that you would have to go back to some date
before 1893 to find a silver to gold ratio of 18 to 1 (maybe with the
exception of just a few weeks or even a few days in early 1980).
Generally, silver has never been that dear in the 20th or 21st
centuries.
oly
Peter Irwin
>
> Just off-hand, I believe that you would have to go back to some date
> before 1893 to find a silver to gold ratio of 18 to 1 (maybe with the
> exception of just a few weeks or even a few days in early 1980).
> Generally, silver has never been that dear in the 20th or 21st
> centuries.
>
silver hit a high which resulted in most silver coinage being worth
more than face value. Canada and the UK reduced the silver content
of their coins in 1920 because of this. The price of silver went
down shortly afterwards.
Peter.
--
pir...@ktb.net
oly
Yes, you are correct - the best the average annual silver price to the
fixed gold ratio could do was roughly 15.4 to 1 in 1919. That was
extremely short-lived; I believe somebody in India was trying to
corner the market. For the 20th Century, that was a great, tremendous
and extremely short-lived deviation from the average.
oly
dlhii
>> - Show quoted text -
>
>Just off-hand, I believe that you would have to go back to some date
>before 1893 to find a silver to gold ratio of 18 to 1 (maybe with the
>exception of just a few weeks or even a few days in early 1980).
>Generally, silver has never been that dear in the 20th or 21st
>centuries.
>
>oly
I did a little research, and you are very correct. Guess I should of
done more looking before miming someone else's numbers.
Don
oly
Perhaps you were also subconsciously thinking of the historic rallying
cry of the American bimetallists, which is "16 to 1".
oly