Attention Gold Bugs

[quote]Headhunter wrote:
Zap Branigan wrote:
LIFTICVSMAXIMVS wrote:
Zap Branigan wrote:
Someone is drawing a false relationship for you to sell you gold.

The relationship is only historical and not theoretical.

Like anything else the values of gold and oil compared against each other will fluctuate. The point being it fluctuates up and down between certain values (historically) and doesn’t just lose value the way paper has.

Who keeps their money in paper? Hoarding gold is almost as bad an idea as hoarding paper money. Invest in something!!!

How is buying gold mining shares different from buying Coca-cola stock? Both produce something buyers want. Its that simple.

Holding gold as a hedge against inflation is a traditional way of taking your wealth out of harm’s way. No one can print up more and devalue your wealth, whereas mine output is already factored into the gold price.

Seriously, Zap, you’re a sharp guy (I really mean that) but you have an obsessive dislike of gold. Its simply an alternative form of money, like wheat or Swiss Francs. Owning either is fine, as is owning gold.

[/quote]

Buying mining stocks is fine. Buying gold is as risky as buying any other commodities.

The time to buy gold was years ago. Now the Fed is concerned about inflation and will take steps to limit it. I suspect we are going to see gold fall even more.

[quote]LIFTICVSMAXIMVS wrote:

Yes. There is a logical way to invest. I typically look at investment in terms of capital goods or consumer goods. The question is where in the business cycle to invest in either of those.

The thing is that gold doesn’t really lose its value. The price of oil in term of gold has changed very little; it is in fact fiat that loses value. If we were able to freely trade gold directly for goods and services (that is, use it as money) I’d still bet on the value of gold over paper.[/quote]

But your not getting my point. These investments I mention also keep you out of cash.

Yes money is going to lose value, so don’t hold money. But if you want the same long term results, invest in a CD, or money market mutual fund. Similar long term return on your money without the risk. (Gold has dropped 22% since march.)

Also if your going to invest in gold, right now is not the right time. It hasn’t been the right time for quite a while. Although until it started to drop, it wasn’t the right time to sell either. The best time to sell was March.

In fact if you have gold, sell it now, at least until it breaks its current trend.

But if your a buy and hold guy, at least get a CD instead.

[quote]Headhunter wrote:

How is buying gold mining shares different from buying Coca-cola stock? Both produce something buyers want. Its that simple.[/quote]

One expends large amounts of capital trying to pull something rare out of the ground, while the other is selling sugar water at a premium. I would choose Coca Cola every time.[quote]

Holding gold as a hedge against inflation is a traditional way of taking your wealth out of harm’s way. No one can print up more and devalue your wealth, whereas mine output is already factored into the gold price.[/quote]

It is a hedge against inflation, when there is inflationary fears. Those fears are going out the window right now.[quote]

Seriously, Zap, you’re a sharp guy (I really mean that) but you have an obsessive dislike of gold. Its simply an alternative form of money, like wheat or Swiss Francs. Owning either is fine, as is owning gold.[/quote]

And this is the false dichotomy. Gold and money is linked in peoples minds. Why? Because that is what we have been told, over and over and over.

But in fact gold is money just like lead is money, or steel, or wood, or sugar. Anything that has value is money. The fact that Coca Cola can take 5 cents worth of HFCS, and 1 cent worth of water, put it into a bottle that cost them 10 cents, and sell that for $2, now that’s true gold.

[quote]Zap Branigan wrote:
Buying mining stocks is fine. Buying gold is as risky as buying any other commodities.

The time to buy gold was years ago. Now the Fed is concerned about inflation and will take steps to limit it. I suspect we are going to see gold fall even more.[/quote]

Certainly gold can fall more. It is not a medium term play and you have to pick your spots. If you look at the first chart I provided, you can see that gold had reasonable support at $720 and major support in the $500s. Simply follow the support lines.

Gold had a bubble, as the chart shows. That’s why I look for it to meander down to the first line, about $720. Now, at that price, many mining companies will produce less because they are marginal there. If it costs $720 to mine and process one ounce, they make no money. In the 500s, virtually no one will be mining or exploring. This is why those are good buy ins, especially if the worst happens (for gold) and the price drops into the 500s. That’s when mines actually begin CLOSING.

If gold got into the low 500s, I’d put at least 30% or more into mining shares and perhaps even bullion. (In this chart, you can see that we should get a bounce in Feb 2009, then a sell-off, with a new bull market beginning in late 2010.)

[quote]The Mage wrote:
Headhunter wrote:

One expends large amounts of capital trying to pull something rare out of the ground, while the other is selling sugar water at a premium. I would choose Coca Cola every time.
[/quote]

… and they say romance is dead…

[quote]Zap Branigan wrote:
LIFTICVSMAXIMVS wrote:
Zap Branigan wrote:
Someone is drawing a false relationship for you to sell you gold.

The relationship is only historical and not theoretical.

Like anything else the values of gold and oil compared against each other will fluctuate. The point being it fluctuates up and down between certain values (historically) and doesn’t just lose value the way paper has.

Who keeps their money in paper? Hoarding gold is almost as bad an idea as hoarding paper money. Invest in something!!!

[/quote]

What do you invest in and how old were you when you started doing it?

I’d appreciate some sort of legitimate answer.

Which one of you:

  1. Have a fair amount of investable assets?

  2. Have moved it to gold, per your suggestions?

Has anyone pushing the idea actually done it with their own cheddar?

[quote]thunderbolt23 wrote:
Which one of you:

  1. Have a fair amount of investable assets?

  2. Have moved it to gold, per your suggestions?

Has anyone pushing the idea actually done it with their own cheddar?[/quote]

I put a lot in at $270 and right after 9/11. I knew the gov’t would increase the money supply to soothe that and would vastly increase defense spending. Bought defense stocks too 3 days after 9/11, made a huge bundle. Oil service stocks have paid off very well too.

With the huge national debt, the only way out is to increase the money supply. Americans are heavily taxed (second highest corporate in the world after Japan), and borrowing is nearing its limits. Only a huge jump in money supply is possible; one reason they (Fed Reserve) no longer publish M3 data.

As the dollar resumes its ultimate collapse (esp if Obama wins), gold should soar, but as the chart showa, it’ll be a bumpy road until the Chinese and Arabs decide they actually want something for their dollars.

[quote]thunderbolt23 wrote:
Has anyone pushing the idea actually done it with their own cheddar?[/quote]

I have no cheddar. I am still investing in paying off my debt.

[quote]thunderbolt23 wrote:

  1. Have a fair amount of investable assets?

  2. Have moved it to gold, per your suggestions?
    [/quote]

Buying gold isn’t an investment; it’s mostly a hedge against inflation which is why it is used to indicate inflation. The investment would be, as HH rightly points out, in the production of gold mines.

The only way I would buy a mining stock is if they were diversified, particularly if the company was into copper.

Gold mining stocks are a poor buy. The only demand for gold is intrinsic.

Steel and copper will be made into buildings, roads, cars, and wiring - you know stuff that the Chinese need but don’t have.

[quote]LIFTICVSMAXIMVS wrote:

Buying gold isn’t an investment…[/quote]

So you are consuming the gold that you are dreaming of purchasing if you had investable assets?

Are you making trinkets, teeth caps, or boiling it with tomatoes in a stew and eating it?

A hedge is an investment, because you are holding it in lieu of another asset for a better rate of return (including “less worse” negative rates of return).

[quote]thunderbolt23 wrote:
LIFTICVSMAXIMVS wrote:

Buying gold isn’t an investment…

So you are consuming the gold that you are dreaming of purchasing if you had investable assets?

Are you making trinkets, teeth caps, or boiling it with tomatoes in a stew and eating it?

A hedge is an investment, because you are holding it in lieu of another asset for a better rate of return (including “less worse” negative rates of return).[/quote]

Investing is not holding. Investing is the act of increasing productivity.

[quote]LIFTICVSMAXIMVS wrote:

Investing is not holding. Investing is the act of increasing productivity.[/quote]

Holding is productive if you get a better rate of return on the asset you are holding compared to putting those assets in a business that generates a lesser rate of return. Holding a commodity can be an “increase in production” because it moves assets away from less productive areas into more productive, as measured by rate of return.

If you get a 10% return on holding gold versus 8% return on a factory producing rubber balls, you are investing in a more productive asset.

If you hold an asset for a future positive cash flow, as you would with a “gold hedge”, because you are choosing to invest assets in a form of investment that will generate a better rate of return than an alternative, you are investing, not consuming.

Rate of return does not apply to holding assets because it is just fetching a market value when it is exchanged for something else. Holding cash is analogous to holding gold or wheat or even oranges. It does not go into increasing productivity. Productivity refers to consumable goods only. That can only be done by consuming capital. Holding is saving it for later use whether it fetches a better or worse return is irrelevant to the act itself.

The purpose of investment is to increase wealth. Wealth can only be increased by increasing production. Holding a supply off the market cannot do that.

[quote]LIFTICVSMAXIMVS wrote:
Rate of return does not apply to holding assets because it is just fetching a market value when it is exchanged for something else. Holding cash is analogous to holding gold or wheat or even oranges. It does not go into increasing productivity. Productivity refers to consumable goods only. That can only be done by consuming capital. Holding is saving it for later use whether it fetches a better or worse return is irrelevant to the act itself.

The purpose of investment is to increase wealth. Wealth can only be increased by increasing production. Holding a supply off the market cannot do that.[/quote]

Rate of return applies to everything that is exchanged. Market value has a rate of return. It is usually equal to the value placed on it by the purchaser. No trade is entered into by rational people expecting to get less than what they give up.

You need to stop talking about stuff you know nothing about.

This is like the 847th time you have piped up pretending to be an expert.

You can’t even get the vocabulary down right.

[quote]rainjack wrote:
LIFTICVSMAXIMVS wrote:
Rate of return does not apply to holding assets because it is just fetching a market value when it is exchanged for something else. Holding cash is analogous to holding gold or wheat or even oranges. It does not go into increasing productivity. Productivity refers to consumable goods only. That can only be done by consuming capital. Holding is saving it for later use whether it fetches a better or worse return is irrelevant to the act itself.

The purpose of investment is to increase wealth. Wealth can only be increased by increasing production. Holding a supply off the market cannot do that.

Rate of return applies to everything that is exchanged. Market value has a rate of return. It is usually equal to the value placed on it by the purchaser. No trade is entered into by rational people expecting to get less than what they give up.[/quote]

But it is meaningless to call something a return that was not invested. Rate of return is:

I give up two oranges now and get back 4. The rate of return is 100%.

To say that saving two oranges now in expectation that I can trade them for one lb of wheat (verses .5 lbs now) is not a rate of return. That is an exchange value. Saving is not investment. What people call saving by keeping money in a bank is not saving, per se.

Rate of return is compared against like goods. Exchange value is the valuation of different goods to each other (price).

I would say it is the the rest of you that have the vocabulary and simple principle incorrect.

[quote]LIFTICVSMAXIMVS wrote:

Rate of return does not apply to holding assets because it is just fetching a market value when it is exchanged for something else. Holding cash is analogous to holding gold or wheat or even oranges.

It does not go into increasing productivity. Productivity refers to consumable goods only. That can only be done by consuming capital. Holding is saving it for later use whether it fetches a better or worse return is irrelevant to the act itself.

The purpose of investment is to increase wealth. Wealth can only be increased by increasing production. Holding a supply off the market cannot do that.[/quote]

Holding gold certainly does increase productivity. If gold returns 10%, and some other productivity only yields 5%, that other activity will have to improve its productivity in order to attract the capital flowing into gold. As such, “holding” incentivizes productivity.

Wealth is increased because capital is parked somewhere where it generates a stronger return until other wealth-producing concerns can achieve a comparable rate of return.

Oh, and rate of return is precisely the only concern of “holding assets” - otherwise, you wouldn’t hold them, whether they be stocks in a factory or gold.

[quote]rainjack wrote:

This is like the 847th time you have piped up pretending to be an expert. [/quote]

It’s a calling card of his.

[quote]thunderbolt23 wrote:
Wealth is increased because capital is parked somewhere where it generates a stronger return until other wealth-producing concerns can achieve a comparable rate of return.

Oh, and rate of return is precisely the only concern of “holding assets” - otherwise, you wouldn’t hold them, whether they be stocks in a factory or gold.[/quote]

So many flaws, so little time.

If capital is “parked” it is NOT, in fact, working. It must be consumed (given up) in order to increase production. We cannot hold petroleum and magically turn it into gasoline.

We cannot hold grain and magically turn it into bread. These capital goods must be consumed first in the act of production in order to makes goods of lower order – consumer goods.

You can only have a rate of return if you first give something up. Namely, by buying stocks or bonds or by diverting consumption to increase production.

I have already explained it in an earlier post. Exchange rates are just prices. Getting a better price than one would have by saving (holding off consumption) is not because of investment.

Productivity has only to do with producing more consumables and not on getting a better price by waiting for a better time to trade it.

A man stranded on a deserted island does not care about exchange rates. He is concerned with rates of return – his increase in wealth.

He must save food to consume during the production of capital goods where he is not directly involved in the production of food (for example, he saves enough berries to get him through the time it takes to make a fishing net).

This is an investment because he is increasing productivity by creating capital goods – the fishing net – but he must consume some capital goods in the process. His rate of return must be computed in a like goods. He gave up two days worth of food and in return he got one weeks worth of food.

His investment in time becomes exponentially lower as he only needs to make repairs to his net and not start from scratch. Maybe now he forgoes fishing to build a shelter.

All economic activity must follow this logical order:

Save → Invest → Produce → Consume