Investment Idea- Gold

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sickowire's picture
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Joined: 2009-03-23

I am new to these boards and I haven't seen much in the way of actionable investment ideas, maybe I don't know where to look.  IMO, every client should have GLD and GDX in their portfolio's.  The government is printing a massive amount of money, China is getting nervous holding our bonds, in the UK today there was a failed bond auction, and Tim Geithner was interested in looking at a proposal regarding a global currency.
 
You have to ask yourself, who in their right mind would buy a long term treasury bond now?  We are going to have trillions of dollars in deficits as far as the eye can see.  There will be a day where foreigners will say enough.
 
Gold has been in a bull mkt for 8 years now and i was curious to see what people thought about it.  I think this is the next bubble.

gvf's picture
gvf
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Joined: 2008-07-01

"Gold has been in a bull mkt for 8 years now and i was curious to see
what people thought about it.  I think this is the next bubble."I'm confused.

sickowire's picture
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Joined: 2009-03-23

I am really trying to see if the masses are participating in this bull market.  I feel that the fundamentals for gold are strong and getting stronger.  I know there are large groups of people who think gold bulls are crackpots.  Most bull mkts end in a bubble faze, witness stocks in the late 90's and real estate, crude etc.   And since gold has been in an uptrend for 8 years I would expect at some point there will be a parabolic move up, maybe not tomorrow but in the future.
These boards are a good tool to learn about the industry, but in the end we are about trying to position peoples portfolios so they can maintain purchasing power and maintain their lifestyle in the future.

skeedaddy2's picture
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Joined: 2005-09-14

I put 10% in SLV (poor man's gold) on Dec. 31st because I agree with your statements. 

brandnewadvisor's picture
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Joined: 2007-03-23

Got SLV and GLD as about 8% of total growth assets.  GLD at about 83 and SLV at about 12 - both bought late 2008.  Added a little to GLD at 89 in January.
 
Another thought, for private asset managers...is anyone hedging their portfolios?
 
I've got about 10% in SH while also having 20% in individual stocks.

Sportsfreakbob's picture
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Joined: 2008-08-24

Hedge bond portfolos with TBT and Stock portfolios with GLD and SDS

B24's picture
B24
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Joined: 2008-07-08

My concern, as Sicko aluded to, is that Gold may be in a bubble.  Not because of it's price, but because it's all anyone talks about these days.  It seems that in the past 25 years, anything that "everyone" is talking about (real estate, tech, commodities, etc.) seems to be approaching bubble proportions.  Because there is such easy access to virtually any asset class these days by virtually anyone in the world (because of online brokers, ETF's, media, etc), everything is now ripe for bubble-fever.
 
Personally, I think you either have to be a short-term trader of gold (if you are good at reading the trends and have the time to jump in/out), or hold it in your portfolio permanently.  If you are trying to just "see what happens" with it, you will likely buy high and sell low.

skeedaddy2's picture
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Joined: 2005-09-14

Everyone is talking about bank stocks too, but that doesn't mean there is a bubble forming. Seriously, if you look at Gold--it went nowhere for almost 25 years (not to be held permanently). It last traded here back in 1980-1981 when inflation was double digits. Today, in a deflationary environment, we have a high level of fear to deal with as well as the prospect of higher inflation. Bubbles don't bother me. In fact, I haven't missed a single one you mentioned in the last 10 years.

sickowire's picture
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Joined: 2009-03-23

I said the next bubble.  I don't think it is in one now, far from it.  I met someone at a networking event last night and he asked me where to invest, I told him to take positions in GLD/GDX..he laughed and said "my wife just went to a sell gold party".  Kind of like a tupperware party.  In bubbles, the average person is a buyer in size not a seller.  Go around to parties and ask people where they keep their gold coins or what their favorite gold mining stock is.  If 7 out of 10 can answer you then I would sell all the gold I had.
 
In 1990 what was the biggest growth area in the market, tech/internet, in the early 2000's it was real estate.  Now the biggest growth area is government programs to deal with the recession and new funding programs like TALF, TARP, PPIP, and quantitative easing.  The biggest bull market I know of is paper currency.  Gold is not a hedge it is a capital gain vehicle, in my humblest of opinions.

2wheeledbeemer's picture
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Joined: 2008-10-10

Here's an interesting exercise you can do, and I'm not a goldbug or Prophet of Doom, but I think this is worthy of note.
 
Click around until you find some website that'll give you historical average prices of housing, cars, food, educational costs, clothing, fuel, etc.  Lots of them to choose from. Then go back and see how many ounces (NOT Dollar's worth, but actual ounces) of gold or silver it took to pay for those things 20, 40, 60, 80, 100 years ago at the prevailing price of those metals back then. 
 
Then, compare the amount of ounces it would take at today's prices to purchase the average house, car, etc.  The amount should be about the same in most cases.  It's a pretty interesting illustration of paper money inflation.  There are some periods of disconnect, but the overall trend is accurate.  With the amount of digital/paper currency being created, do you see that trend continuing?
 
I know gold doesn't pay a dividend, goes sideways for 20 years at a time, and I can read the same ICA chart we all used to have up behind us on the wall before we took it down and didn't put the new one up.  Point is, it's been an historically good store of value.
 
Which would get you more fired up - finding a box with 1000 pre-1933 $20 gold coins in Granny's attic, or a box of shares of RCA/GM/GE of the same period value?  I don't even know what the shares would be worth, but my gut reaction is that all of us would stop breathing for a long time digging through the coins, while the first thought when we saw the certificates would be, "This is going to be a tax nightmare..."
 

gvf's picture
gvf
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Joined: 2008-07-01

I'd be ok finding GE shares @ 0.70 cents.  A few thousand of them.  

B24's picture
B24
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Joined: 2008-07-08

2wheeledbeemer wrote:Here's an interesting exercise you can do, and I'm not a goldbug or Prophet of Doom, but I think this is worthy of note.
 
Click around until you find some website that'll give you historical average prices of housing, cars, food, educational costs, clothing, fuel, etc.  Lots of them to choose from. Then go back and see how many ounces (NOT Dollar's worth, but actual ounces) of gold or silver it took to pay for those things 20, 40, 60, 80, 100 years ago at the prevailing price of those metals back then. 
 
Then, compare the amount of ounces it would take at today's prices to purchase the average house, car, etc.  The amount should be about the same in most cases.  It's a pretty interesting illustration of paper money inflation.  There are some periods of disconnect, but the overall trend is accurate.  With the amount of digital/paper currency being created, do you see that trend continuing?
 
I know gold doesn't pay a dividend, goes sideways for 20 years at a time, and I can read the same ICA chart we all used to have up behind us on the wall before we took it down and didn't put the new one up.  Point is, it's been an historically good store of value.
 
Which would get you more fired up - finding a box with 1000 pre-1933 $20 gold coins in Granny's attic, or a box of shares of RCA/GM/GE of the same period value?  I don't even know what the shares would be worth, but my gut reaction is that all of us would stop breathing for a long time digging through the coins, while the first thought when we saw the certificates would be, "This is going to be a tax nightmare..."
 
 
Are you kidding me?  $20,000 worth of GE shares from pre-1933?  And you would take the coins?  Here's a deal for you.  You give me the equivalent of $20,000 in pre-1933 GE shares, and I will give you $20,000 worth of pre-1933 gold.
 
(shlt I hope I'm right on this!)

buyandhold's picture
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Joined: 2008-09-23

2wheeledbeemer wrote:Here's an interesting exercise you can do, and I'm not a goldbug or Prophet of Doom, but I think this is worthy of note.
 
Click around until you find some website that'll give you historical average prices of housing, cars, food, educational costs, clothing, fuel, etc.  Lots of them to choose from. Then go back and see how many ounces (NOT Dollar's worth, but actual ounces) of gold or silver it took to pay for those things 20, 40, 60, 80, 100 years ago at the prevailing price of those metals back then. 
 
Then, compare the amount of ounces it would take at today's prices to purchase the average house, car, etc.  The amount should be about the same in most cases.  It's a pretty interesting illustration of paper money inflation.  There are some periods of disconnect, but the overall trend is accurate.  With the amount of digital/paper currency being created, do you see that trend continuing?
 
I know gold doesn't pay a dividend, goes sideways for 20 years at a time, and I can read the same ICA chart we all used to have up behind us on the wall before we took it down and didn't put the new one up.  Point is, it's been an historically good store of value.
 
Which would get you more fired up - finding a box with 1000 pre-1933 $20 gold coins in Granny's attic, or a box of shares of RCA/GM/GE of the same period value?  I don't even know what the shares would be worth, but my gut reaction is that all of us would stop breathing for a long time digging through the coins, while the first thought when we saw the certificates would be, "This is going to be a tax nightmare..."
 I've read that an ounce of gold today would buy a fine men's suit. A hundred years ago, an ounce of gold would buy .... a fine men's suit. As far as the shares, go, the ICA guide has an interesting box that shows the value of the ICA as a whole over the past 50 years vs. the value of individual blue chip stocks and in almost every case, the individual stocks have underperformed the ICA (or the index, if you want to compare it that way.)

sickowire's picture
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Joined: 2009-03-23

It all depends on when you look, but if you look at the early 70's when gold was $35/ounce the dow was in the  high 600's, gold did far better, not including dividends but who knows.  If you look at the early 80's, the dow and gold were roughly the same.

2wheeledbeemer's picture
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Joined: 2008-10-10

[quote=B24
Are you kidding me?  $20,000 worth of GE shares from pre-1933?  And you would take the coins?  Here's a deal for you.  You give me the equivalent of $20,000 in pre-1933 GE shares, and I will give you $20,000 worth of pre-1933 gold.
 
(shlt I hope I'm right on this!)]
 
The phrase was "get you more fired up..."  My system would only let me go back to 1968 on the GE shares, so I have no idea how much they'd be worth, and it may be a bunch more than the 1000 coins (pre '33 has numismatic value, in addition to the $1000 +- bullion value, so maybe the coins are actually worth more in today's dollars even).
 
I guess the point I was trying to make is that we intrinsically know there is uncontestable value in precious metal, which will remain immune from whatever fiscal/currency policy may be blowing across the quarter deck at any point.

gvf's picture
gvf
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Joined: 2008-07-01

"we intrinsically know there is uncontestable value in precious metal"This is what I cannot understand.  There is no such thing as INTRINSIC, INNATE, pre-determined value.  The value of gold is based off a human, generational, cultural...*ephemeral* value.  One, of course, could say the same about GE.  But, GE actually means something to our nation, our world.  They provide services, and create things.  Gold does none of those things (I'm ignoring the practical uses of gold, because let's face it, the value of gold is not determined by industrial use).Rather, the value of gold is based off the collective neurosis of everyone participating in the charade called 'intrinsic value'.  In a related note: Pirates of the Caribbean has a great scene where Lord Beckett is addressing Jack Sparrow, and he says something like:  The world has changed Jack.  Gold is no longer the coin of the realm.  Rather, currency has become the currency of the realm. 

2wheeledbeemer's picture
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Joined: 2008-10-10

gvf, I agree completely that "value" has fleeting, ephemeral (good word, by the way) qualities.  Enron a few years back, Citi 18 months ago vs. now, the value a 500,000 producer had as represented by the upfront/retention package he or she could demand and expect to receive a year ago vs. now, ad nauseum.  And I completely agree that my GE shares which I've owned for years, and have continued to buy all the way down represent what I expect to be strong value for decades to come.  I, and hopefully future investors, will continue to see value in owning a piece of that for a long time.
 
However, I would find it hard to support the assertion that gold/silver, although no longer the coin of any realm (sadly), do not carry timeless,  intrinsic value on the third rock from the sun.  That value may not be completely pre-determined (one coin=2 cows, one coin=a good men's suit, one coin=passage on the particle beam accelerator to planet Zerculum), but I think history would support that as a storehouse of value, gold and silver have held up pretty well.
 
I've got an 85 y.o. client, really nice lady, grew up in Germany, and she lived through it all.  Everything you've read about the hyper inflation, burning paper money, hoarding, etc.  She's not Jewish, so it wasn't as bad as it could have been, but she's got some amazing photos and stories that she's shared with me.  One thing she's always said to me through the years that we've worked together (and she's actually a pretty good client, and likes to trade a fair bit) is something along the lines of "it's only worth something if I can buy bread with it regardless of who printed it or stamped it."  She's said that, although they were in Germany, a large amount of US silver and gold coinage was used to good effect while the printing presses were running at full blast.
 
Call it collective neurosis if you will, but the banker in Zurich and the tribesman in deepest, darkest will both trade with you if you've got it.

sickowire's picture
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Joined: 2009-03-23

there is no real 'value' in gold.  it is a perception a price.  if one has the time to analyze the cash flows from a business for the next 5 to 10 years you can come up with a value you should pay for the company/stock.  people who are buying gold can't value it.  They simply 'hope' that people will continue to buy it to drive the price higher.  that is the real problem with it.  with all the economic problems that exist now and with all the new govt programs to fire up the printing presses you would have to think that inflation is a likely result.

mrclutch's picture
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Joined: 2006-09-23

I've had at least 5% of my client's allocation in gold (either fund or GLD) since late 2003, early 2004.  It's a great hedge.  I think two of the smartest portfolio management teams out there are First Eagle Global and Ivy Asset Strategy and they have at least 10% of their portfolios in gold.

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