Gold can be considered a form of currency. Indeed, throughout much of human history it WAS currency. So if you think of it as currency then the question of return becomes irrelevant, just as nobody holds SGD, USD, JPY, AUD etc in order to generate a return, except for currency traders.
When gold is held as a currency like SGD, USD, JPY, AUD etc, then it is merely a temporary store of purchasing power, until that power is exercised to buy an investment - one that generates an actual return. Note that the return may not necessarily be in paper currency e.g. China has made USD loans to Venezuela that are to be repaid in oil. Even gold itself can be lent, with interest to be repaid in gold (or in paper currency equal to the value of the gold interest).
(15-03-2013, 05:30 PM)d.o.g. Wrote: [ -> ]Gold can be considered a form of currency. Indeed, throughout much of human history it WAS currency. So if you think of it as currency then the question of return becomes irrelevant, just as nobody holds SGD, USD, JPY, AUD etc in order to generate a return, except for currency traders.
When gold is held as a currency like SGD, USD, JPY, AUD etc, then it is merely a temporary store of purchasing power, until that power is exercised to buy an investment - one that generates an actual return. Note that the return may not necessarily be in paper currency e.g. China has made USD loans to Venezuela that are to be repaid in oil. Even gold itself can be lent, with interest to be repaid in gold (or in paper currency equal to the value of the gold interest).
Interesting...never thought of it as a way to generate more money. I like this concept.
The 'calm' that we are having now is having a bearish effect on gold.....
The million dollar question is whether the 'calm' will stay or it is just an 'illusion'....for example will the Euro countries' economies recover or that somewhere in the near future, the situation there will get worse.....if u think it will get worse, then gold is a good bet......
(15-03-2013, 01:56 PM)a74henry Wrote: [ -> ]To me, gold is a form of insurance. It rockets up when there is a crisis.
When we are enjoying peace, it is better to invest in equities or bonds. The reason, I have investment in gold is I cannot predict when an economic crisis or war will occur.
(15-03-2013, 09:46 AM)Musicwhiz Wrote: [ -> ] (14-03-2013, 11:18 PM)keat1979 Wrote: [ -> ]Regarding value investing, said if the gold price corrected to 600 dollars per ounce, would a value investor buy it? if the market price allowed us to see the opportunity, i don't see why we don't wish to invest in a 600 if it takes cost price of $900(assuming) from producter to extract the gold?
I feel this argument is fallacious.
So the cost of extracting gold is $900 using your example. But why would the cost of extracting it be relevant to me as an investor? I should be looking at the cash flows an asset would produce in future to determine the asset's value, right?
So if were offered this gold at $600, as a value investor I should be computing the PV of all future cash flows I would expect from holding this gold. If this value exceeds $600, then I would purchase; if it does not, then I would avoid. Simple back of the envelope analysis.
In this case though, the gold would produce a present value of ZERO dollars - it just sits around and looks pretty. Therefore, why would I pay $600 just to display an ornamental piece? The truth is that people pay the $600 in the hopes that someone else would pay a higher amount for that gold. In other words, people are buying based on perceived value rather than the actual cash flows which can be produced from the gold. This is how it differs from holding shares of a company which pays dividends - it would be possible thus to assign a value for that company which is >0 assuming it is profitable and pays regular dividends into the forseeable future.
I would agree that gold can never generate cashflow but the concept of cash flow didn't apply to gold does not mean that a value investor should never invest in gold.
The problem now is the currency war that is happening around the world and you can see that Japan is doing quantitative easing too to massively inflate the currency. If you think that it doesn't generate cash flow and you do not hedge your wealth by investing in gold, your wealth in JPY(Assuming you are japanese citizen) will be massively depreciated by 20%, therefore you are losing your purchasing power as well if you live in Japan.
Perhaps we should use the relative concept to value gold such as Price to amount of gold that US govt back the USD(Similar to Price to Book ratio)
Here is the article that articulate the ideas:
http://seekingalpha.com/article/494111-w...ue-of-gold
Basically what the author do is to associate the current supply of M1 with the number of ounces that US officially held as bullion. i.e. the M1 money supply amount divided by 1.3075 billion (5*261.5 million = 1.3075 billion) should be the fair price of gold.
Many value investor shun away gold just because of the cash flow concept that doesn't apply to gold, but i would urge investor to consider gold not only it provide hedges to hyperinflation, but it is also a form of ultimate financial insurance against the collapse of derivatives paper.
(15-03-2013, 05:30 PM)d.o.g. Wrote: [ -> ]Gold can be considered a form of currency. Indeed, throughout much of human history it WAS currency. So if you think of it as currency then the question of return becomes irrelevant, just as nobody holds SGD, USD, JPY, AUD etc in order to generate a return, except for currency traders.
When gold is held as a currency like SGD, USD, JPY, AUD etc, then it is merely a temporary store of purchasing power, until that power is exercised to buy an investment - one that generates an actual return. Note that the return may not necessarily be in paper currency e.g. China has made USD loans to Venezuela that are to be repaid in oil. Even gold itself can be lent, with interest to be repaid in gold (or in paper currency equal to the value of the gold interest).
Totally agree that gold is a temporary store of purchasing power, and as the ultimate storage for wealth, gold is lacking the liquidity if compared to cash or money market but liquidity in cash is causing it to be eroded by inflation.
But I agree that by investing in companies that have economic moats to generate consistent cash flow over a long period of time, should be able to easily beat gold in terms of performance, but again there is a certain role of precious metal in portfolio management to properly hedge the currency risk and inflation risk as well.
(16-03-2013, 12:47 AM)keat1979 Wrote: [ -> ][quote='Musicwhiz' pid='44900' dateline='1363311992']
[quote='keat1979' pid='44885' dateline='1363274303']
Here is the article that articulate the ideas:
http://seekingalpha.com/article/494111-w...ue-of-gold
Basically what the author do is to associate the current supply of M1 with the number of ounces that US officially held as bullion. i.e. the M1 money supply amount divided by 1.3075 billion (5*261.5 million = 1.3075 billion) should be the fair price of gold.
.............................................
But I agree that by investing in companies that have economic moats to generate consistent cash flow over a long period of time, should be able to easily beat gold in terms of performance, but again there is a certain role of precious metal in portfolio management to properly hedge the currency risk and inflation risk as well.
there is another one on Gold I read a few days back.
http://seekingalpha.com/article/1271951-...old-notion
The author first lists all the factors which can have an effect on the price of gold & analyses the various predictions on gold e.g Goldman Sachs prediction of $1200/Oz.
& I am pasting the Conclusion of the article.
'"Those who make proclamations based on their fundamental analysis that gold is dead, doomed and declining to $1200 or $1000 are most likely analyzing only a fraction of the factors that determine the price of gold; their predictions are nothing more than opinions. They cannot see all of the inputs that result in the price of gold. These factors are many and complex and always changing. They cannot see inside the "black box." Only the market can synthesize all of these factors to produce a price - a temporary price.
There is the risk of not having a position when the market in gold moves because one was scared off by fear mongering and rantings which are based on opinions or feelings of gold detractors.
Observation of Fundamental factors can help determine your opinion and sentiment and the direction (philosophy) of your trading, but technical analysis will verify if your direction is correct when it coincides with the trend. Go with the trend."
I think it is a nice read for anyone who is trying to delve in Gold.
For me I am long on Gold. I am waiting for it to drop to ~ 1550 before I Leverage further. Looking at the past trends it take almost 2 years for the gold to regain 1k after it touched the level & came back. further fuelling of prices was helped by the financial crisis. So if we look as pre 2008 trends, it touched 700 in 2008 then dropped & hovered in a horizontal channel for 2 years before it suddenly jumped to 1000 before crashing again. Sorry I am not very good at TA but it seems to me that buying gold now for the long term is a good enough bet for now.
It can be an insurance as you dont expect it too fall too low may be another 10% but the upside potential is good.
I was reading news that Germany trying to 'force' Cyprus to sell its gold.....if that happens, then Greece, Portugal, Spain and Italy might be 'forced' too.....somewhere down the road.....gold is certainly bearish for now......
But I guess other central banks like China will be happily collecting......if I remember correctly Gold constitutes only 1% of their reserves and I remember that a central banker from china was saying China could not increase the % because that would force up the gold price......well if it is not now to buy for the Chinese then when......
Simple Simon thinks the Market (aka maybe "Syndicate" or the "unseen hand") is shifting money from Gold to Equity now. So watch closely when you can buy gold again. Of course with your "extra cash" lah!
Quote: don't see why we don't wish to invest in a 600 if it takes cost price of $900(assuming) from producer to extract the gold?
Is this assumption possible to happen in real world? Why produce then? This remind me of the Thai Gov. buying rice from their farmers but unable to sell it to the world at the price Thailand wants.
gold down 6%
http://www.marketwatch.com/story/gold-fa...2013-04-15
After the global financial crisis gold had a strong run up as investors seeks safety.
Fear of a double dip recession, fear of the Europe crisis and fear of US's massive printing.
Gold has always been viewed as a defensive or safe asset.
I know of a few people who never believed in stocks and bonds, they bought physical gold as they were so sure of it going only higher and higher.
I explained to them that gold had no fundamentals, none believed me.
This is what warren buffett had to say about gold
“When we took over Berkshire, it was selling at $15 a share and gold was selling at $20 an ounce. Gold is now $1600 and Berkshire is $120,000. Or you can take a broader example. If you buy an ounce of gold today and you hold it at hundred years, you can go to it every day and you could coo to it and fondle it and a hundred years from now, you’ll have one ounce of gold and it won’t have done anything for you in between. You buy 100 acres of farm land and it will produce for you every year. You can buy more farmland, and all kinds of things, and you still have 100 acres of farmland at the end of 100 years. You could you buy the Dow Jones Industrial Average for 66 at the start of 1900. Gold was then $20. At the end of the century, it was 11,400, and you would also have gotten dividends for a hundred years. So a decent productive asset will kill an unproductive asset."
Investing in gold is like playing a game of the greater fool, only by selling out to a greater fool can one make a profit.
Gold never creates jobs, gold never gives dividends and gold never grows in size.
Ignore those modern portfolio theory fools who diversify 5 to 10% of their portfolio into gold.
Staying in stocks will always give a better long term return, never forget this.
