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Deflation or Inflation?


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Here are a few gold stocks AEM, AU, EGO, GG, GLD, GOLD, RGLD It looks like the spiders GLD follows the spot price of gold fairly close

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My shorting of gold is a short term small play and as always may be wrong. Just remember if you bought gold in 1980 you would have gotten much better returns sticking it in any passbook savings account. There would be no comparison to stocks. The long term performance for gold is really bad. Other commodities may be a better inflation hedge like oil for instance.

See the difference in returns in United States Oil-USO and Spiders Gold-GLD etf funds. The difference in returns is quite substantial and oil is getting really discounted lately. All this is just my opinion and may be wrong as always.

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Here are a few gold stocks AEM, AU, EGO, GG, GLD, GOLD, RGLD It looks like the spiders GLD follows the spot price of gold fairly close

post-778-1230840547_thumb.png

My shorting of gold is a short term small play and as always may be wrong. Just remember if you bought gold in 1980 you would have gotten much better returns sticking it in any passbook savings account. There would be no comparison to stocks. The long term performance for gold is really bad. Other commodities may be a better inflation hedge like oil for instance.

See the difference in returns in United States Oil-USO and Spiders Gold-GLD etf funds. The difference in returns is quite substantial and oil is getting really discounted lately. All this is just my opinion and may be wrong as always.

 

Well the price is volatile, so buying on weakness and selling/shorting on strength would be important strategies. Its stronger than it was 3 weeks ago. May be a good time to short.

 

From what I've read gold went into "backwardation" in December. This reportedly is virtually a first ever for gold. It means from what I gather, in the end, almost no one is coming out of their physical gold positions for any cash carrot in the futures market.

 

If you haven't read about this, try googling Antel Fekete, going to his website, reading the articles about backwardation. He interprets it as a signal of major dysfunction in the price setting of gold at Comex and of possible impending disintegration of the price setting mechanism, followed by a leap to the upside in price.

 

A long short gold would be a lonely position from that standpoint. Of course no one can predict the actual future.

 

As for deflation vs inflation, the following link is a really good read written by the same guy (Jim Willie) I posted a link on re: Liquidation.

 

He argues for AND rather than "either/or" :wink:

 

http://news.goldseek.com/GoldenJackass/1230912000.php

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Here are a few gold stocks AEM, AU, EGO, GG, GLD, GOLD, RGLD It looks like the spiders GLD follows the spot price of gold fairly close

post-778-1230840547_thumb.png

My shorting of gold is a short term small play and as always may be wrong. Just remember if you bought gold in 1980 you would have gotten much better returns sticking it in any passbook savings account. There would be no comparison to stocks. The long term performance for gold is really bad. Other commodities may be a better inflation hedge like oil for instance.

See the difference in returns in United States Oil-USO and Spiders Gold-GLD etf funds. The difference in returns is quite substantial and oil is getting really discounted lately. All this is just my opinion and may be wrong as always.

 

Just a few things:

 

1980 was virtually the top of the last gold cycle ending in bubble, at the end of 1970s stagflation. Of course, if you buy at the top, there's only one way to go and that's a long way down. If you bought then, you probably lost your shirt.

 

The next cycle didnt get going on its upswing until 2000ish. The price has more than quadrupled since then. I dont think its over for many reasons.

 

2008 has been quoted as the worst for stocks on record since the Great D and theres plenty of downside left. Gold is virtually unscathed by year's close.

 

If you are right, then to lose from here, now must be a sizeable or even the final peak of gold. That would usually mean all sorts of fundamentals would be in place to support the view.

 

However, the cost of gold production is not much less than market price right now.

 

Next, gold mining shares in the last 2-3 weeks have risen hugely. That is to me, possible anticipation in a rise in the price of gold. The price of gold itself has been quite mild in comparison, even considering leverage.

 

Next, The bailouts and monetary base expansion in trillions are firmly bullish for gold.

 

Next, interest rates are 0.25% or zero. That's firmly bullish for gold.

 

Next, US TBills are negative interest bearing or zero. IE people actually pay Uncle Sam for the privilege of lending him money.

 

Next, there is an enormous amount of cash on the sidelines building momentum, like the now tired "tsunami" analogy of water being "sucked out" first before coming back in monster waves.

 

That money is going somewhere. I agree oil and energy are looking very good buys. Exxon Mobil in the USA, Paladin in Australia (pure uranium play - 80% off its peak) and big natural resources companies such as BHP are set to rise as commodities have real asset value. For now, I'm not game enough. I'll sit and wait for the really nasty figures from China and more gloom elsewhere before thinking about resources and energy.

 

 

Finally I just dont see gold mania in the mass media and popular psychology as per last peak of bubble. Sure there's no coins in the shops but the greed psychology isnt there to me, just fear, which is good for volatility.

Edited by breakfast
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Hears another link about gold

http://www.fool.com/investing/general/2009...r-the-gold.aspx

 

20-Year Average Annual Return

Company

Campbell Soup...........................11%

Kroger (NYSE: KR)......................13%

Clorox (NYSE: CLX)....................13%

Sherwin-Williams (NYSE: SHW)..15%

Nucor (NYSE: NUE).....................16%

Harley-Davidson (NYSE: HOG)...17%

Nike (NYSE: NKE).......................21%

S&P 500 (excluding dividends)....6%

Gold............................................4%

 

If someone wants to preserve capitol they would be much safer putting there money into a money market account than try time commodities markets, that is what gold is a commodity. For someone who is not putting serious time in studying the market to make plays on gold, especially now is very very risky. Some people are putting a large part of there capitol in gold is very bad money management. I know someone who took a beating in gold last year.

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USMC-Retired

Just because you say that 20 year return was this. I say what was the previous 5, was it devalued and recovered. Did they have a few good years at the beginning of the 20? You should never look at averages and look at mean numbers. What were the numbers yearly and what did they look like on a yearly basis. What happen to make those returns. These are numbers. Numbers can make bad things seem good. Remember a good mathematician or statistician can make numbers reflect what ever they want.

 

Just going on numbers. How about this. In 30 years gold returns starting with Feb 1980 to today has had a return rate on one oz gold of .0008% for 30 years. You would have made exactly $19.53 over that time on that ounce of gold. Research the prices of gold and then thank the Hunt Brothers for that inflation.

 

See I made the number look as though gold is the worse thing you could ever invest in. I can do that with any investment given unlimited time and limiting my data.

 

 

 

 

 

 

 

 

Hears another link about gold

http://www.fool.com/investing/general/2009...r-the-gold.aspx

 

20-Year Average Annual Return

Company

Campbell Soup...........................11%

Kroger (NYSE: KR)......................13%

Clorox (NYSE: CLX)....................13%

Sherwin-Williams (NYSE: SHW)..15%

Nucor (NYSE: NUE).....................16%

Harley-Davidson (NYSE: HOG)...17%

Nike (NYSE: NKE).......................21%

S&P 500 (excluding dividends)....6%

Gold............................................4%

 

If someone wants to preserve capitol they would be much safer putting there money into a money market account than try time commodities markets, that is what gold is a commodity. For someone who is not putting serious time in studying the market to make plays on gold, especially now is very very risky. Some people are putting a large part of there capitol in gold is very bad money management. I know someone who took a beating in gold last year.

Edited by USMC-Retired
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Hears another link about gold

http://www.fool.com/investing/general/2009...r-the-gold.aspx

 

20-Year Average Annual Return

Company

Campbell Soup...........................11%

Kroger (NYSE: KR)......................13%

Clorox (NYSE: CLX)....................13%

Sherwin-Williams (NYSE: SHW)..15%

Nucor (NYSE: NUE).....................16%

Harley-Davidson (NYSE: HOG)...17%

Nike (NYSE: NKE).......................21%

S&P 500 (excluding dividends)....6%

Gold............................................4%

 

If someone wants to preserve capitol they would be much safer putting there money into a money market account than try time commodities markets, that is what gold is a commodity. For someone who is not putting serious time in studying the market to make plays on gold, especially now is very very risky. Some people are putting a large part of there capitol in gold is very bad money management. I know someone who took a beating in gold last year.

 

Thanks for the counterpoint, love. Its good to hear the reasons against. Thanks for the link too, I'm very glad for it and hope we can pool education resources here.

 

One issue with the argument in the link is gold versus stocks. It seems implicit that the author argues they are both investments.

 

Some say gold is not really an "investment", but more of a "hedge" against crisis, and especially, inflation. Long term, and by that as you have pointed out, in certain decades, gold has not held its own according to many data, relative to investments (ie stocks in your list).

 

My view is gold is cyclical and is good in times of currency crisis. "Gold climbs a wall of worry". Its somewhere in a cycle up to me and hasn't finished. The world is presently a glutton for fear.

 

Gold is not just "a commodity", just as food is not iron. The devil is in the detail. Gold is money when other forms of money are in doubt. Gold stocks did brilliantly in the great depression and in 70s stagflation. We are now in crisis. There's plently left to climb in the wall of worry. The world looks pretty unstable this year.

 

When the crisis looks to capitulate and stocks look set to rally (not the dead cat bounce of the "inauguration rally"), money comes out of its hiding hole and shifts back into investments in spades. Capitulation is a flag to consider moving on from gold and back into investments. I will look at what happens at that moment. I expect there could be a little more in gold at that point. The herd didnt leave realestate and stocks when they should have, so why should they learn from history when the time comes to move on?

 

Right now as of early January 2009, gold may fall and even fall to 2/3 or more of its present price per troy ounce, maybe more, markets are unpredictable.

 

It may do this because the euro is shaky thanks to emerging markets such as Ukraine and Hungary which are teetering, coupled to the lack of unity in the Eurozone. Germany was disciplined, and argues why should it pay the price of irresponsible lending to other constituents?

 

This is bullish for the US dollar. A falling euro is a force for a rising dollar. A rising dollar is a threat to gold and thus gold could easily fall with a rising USD.

 

As the chips are about to come down on the euro, short gold has its merits.

 

This link elaborates on a near term bleak view for gold:

 

http://www.gold-eagle.com/editorials_08/klein010209.html

 

I am long. I expect volatility. And "told you so's" for the next few months are a big risk. I'll add to my gold mining shares on any severe weakness.

 

Again, buy on weakness, sell on strength. The buy for gold is about 700-750 USD. It could change and the market pays no heed to where it should be. It could drop well below 700. But I think there are plenty of fundamentals for it to bounce up hard in the next 3 years. I will sell when I see mania. The precedents are stock, commodity and realestate mania. Remember the "decoupling" hypothesis (mania) :P .

 

When I see a "precious metal" column feature regularly in the main media papers and doco's on gold and silver on commercial TV and people asking me about gold, then I'm sizing up my exit.

 

At or around that point I'm going stocks, mainly, commodities outside of gold or even switch to banks (dividends). I'll be buying into energy and base metals this year. I will look for molybdenum at the same time as uranium and iron. Molybdenum is used to tip drills for mineral exploration, lines nuclear reactors and is used in steel production. I'll also look at liquified gas (in australia Queensland Gas and LNG) as well as coal to liquid gasification (such as Linc energy www.lincenergy.com.au). These stocks are historically highly profitable in their recent history when they are going up.

 

Many stocks are overpriced right now. The Price-Earning Ratio is still well above 15 for many. There are some companies which are priced per share for less than total cash assets. These companies I'll look at (after they chew through some of that cash). I have a short list of them already.

 

Here is a link on PE ratio history in the 1997 asian crisis and others (note the PI):

 

http://www.marketoracle.co.uk/Article8050.html

 

I expect earnings for companies like BHP to fall this year, which will raise the PE ratio (ie less attractive). People harp on about the PE ratio but its not a static concept, you need to look at its history for that company and where its going. That means looking at both where the "price" is going and also the "earnings".

 

Although it looks cheap now for BHP, when earnings fall as the annual commodity contracts with China this year are negotiated at LOWER prices, the stock should by rights take a little beating. That may open up an opportunity to buy.

 

Also, you raise a good point. Don't put all your eggs in one basket. If you stick it all in gold, you are vulnerable to gold and gold is very volatile.

 

In the Weiss Safe Money Report, he recommends 95% short term TBonds and 5% gold and NO stocks. He also recommends to sell any realestate you were thinking of selling in the near future asap (at least, that was a month ago). The update is out on Jan 8th (subscribers only) I'll post here the reco's.

 

A common expectation is that this bear is going to grizzle the Dow down another 50% this year and maybe into 2010. Rarely is anyone right on that. It could be way longer or violently shorter.

 

To me, that depends on whether the US defaults on debt interest repayments, the ability to secure new loans from other countries (China and Japan are going to hell in a handbasket) and geopolitical considerations in the Middle East (just look at Gaza now) and Russia.

 

Gold stocks should get no mercy with that, if the last gravitational pull towards the earth down the elevator shaft in 2008 is any guide. But gold itself should do relatively well to others.

 

By that logic, you would be best to stay out of all stocks and gold, as cash could be king. Notice also, in the realm of cash, now you can trade currency markets through a mechanism similar to trading stocks. This has solid merits if you know what you are doing. I'm not at that level.

 

Notice though on this rally now, that gold, gold stocks and some energy stocks (uranium here in Aus) are first out the gate.

 

Thanks again for the info.

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USMC-Retired

 

tried to PM you but it didnt work

 

I'd like to catch up when I come to PI, which will be a year away. Hope to see you and your partner when myself and Kristine return in 2010.

 

Cheers

Tom

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I put 15K in GOLD ETF just months ago, which rocketed to 19K in only a week

 

What did I do? Like doofus, I thought manna had rained down from heaven. I held. Only to watch that 4K profit wither on the vine to near zero at which point I sold out to stop a loss.

 

The message is CLEARLY:

 

Sell on strength

 

Buy on weakness

 

Agreed. Warren Buffet once said something to the effect that when everybody gets excited (by a rising market) he got scared, and when everybody got scared, he got excited. Of course, this goes against human nature. It was difficult for me to sell in bull markets and buy in bear markets until I'd lived through a few.

 

I bought gold in 1978 when it was around $210. By early 1980 it topped around $850, then dropped. Don't ask me what I sold it for, but I will tell you the lesson I learned: "Bulls make money, Bears make money, Pigs get slaughtered".

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The most important physical commodity out there is oil. There is an almost endless list of oil-derived products. Form where you are now you can turn any direction and see many of them. Iranian Oil Bourse is getting ready for Petrodollar warfare. But we all know the best-laid plans of mice and men often go awry, this will be a wait and see thing. Because there is a good chance the dollar will get more devaluation oil can be a hedge if you are into hedging with individual commodities, remember gold is an individual commodity too. If I had to choose between the two of them oil would win hands down as an inflation hedge. Best of all oil is at historic lows now, gold is not. This is a no brainier which commodity is the best to buy now. Buy low, sell high.

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The most important physical commodity out there is oil. There is an almost endless list of oil-derived products. Form where you are now you can turn any direction and see many of them. Iranian Oil Bourse is getting ready for Petrodollar warfare. But we all know the best-laid plans of mice and men often go awry, this will be a wait and see thing. Because there is a good chance the dollar will get more devaluation oil can be a hedge if you are into hedging with individual commodities, remember gold is an individual commodity too. If I had to choose between the two of them oil would win hands down as an inflation hedge. Best of all oil is at historic lows now, gold is not. This is a no brainier which commodity is the best to buy now. Buy low, sell high.

 

You're right on the money love. Nice short too.

 

Exxon is cashed up and ready for acquisition. It's a great buy.

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