Bye Bye Gold Nonsense

[J. J.]

Au close Friday:  $1369.90

Au close 2/9/01:  $260.00

Sure glad the "nonsense" has ended.

[J. J.]

Au close Friday:  $1369.90

Au close 2/9/01:  $260.00

Sure glad the "nonsense" has ended.

So adjusted for inflation, there's been a 1k increase per ounce since 2001? This is probably the maximum you could get before it lulls again.

I would buy any now. 

[J. J.]

Opebonomics is even worse than Obamanomics. 

Interestingly, silver has gone up more 9 times since its low $4.15 in 2001.  Even buying on the day Obama was inaugurated, you would have made a 350%+ profit.

[J. J.]

Gold is still in a long-term bull market - that much is certain.  Unlike almost all other commodities of which questions are much greater.

Wrong. It has peaked and will soon fall spectacularly, just like oil. It isn't that hard to spot these bubbles. When "everybody" is talking about them and how great they're doing (ditto for real estate few years back) it's time to sell, or if you're adventurous, short in a big way.

It was being said that it had peaked about 200$ ago. And again about 400$ before that. Etc.

Gold is a hedge against inflation and currency devaluation, both of which are occurring across the world (especially in the UK, US, China, and Japan). If currencies resume their strength, gold will fall. Except if that happened it would imply that inflation has cut off which would require that the Fed stop its various programs which would result in the recession coming back in full force and then some (not that they are actually preventing it so much as delaying it).

But please, keep on claiming that gold is in a bubble and that it has peaked, I would love it to drop back down a couple hundred dollars so I can buy some more.

You want to buy it when it's falling? Ok.......

Anybody who bought Gold when the thread was made would have made a 14% or (28% annualized) return if they sold today.

So he didn't time the peak exactly right. A person pointing out that real estate was overvalued in 2006 wasn't wrong becuase it was that much higher in 2007. A bubble's still a bubble.

It doesn't, however, look like we've reached the outer edge of the bubble.  When it collapses, we might gold still around or above 1/2011 level.

[J. J.]

No, because when bubbles collapse, the commodity becomes undervalued, something gold certainly wasn't in January. Look how far oil fell in 2008. And that was a commodiy that's actually useful. A blind man could see this a mile away.

You assume, as Opebo did, that the bubble is close to the upper edge at this point.  I do not.

The are some uncertainty factors, and gold, as a store of value, is much different that oil.  That analogy is is invalid. 

Opebo's premise is incorrect.  Gold was starting up in 1978.  On 1/1/79, gold was at roughly $220 per ounce.  It was never below that over the next decade and I think the lowest that it got was a around $280-90, or 20%+ off its close.  Long term, that price never retreated.  http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

[J. J.]

So this is why Beck went off the air.

Opebo was wrong; Beck was right.

What is interesting is the parallel between 1976-78 and 2008-10.  The low to high percentage increase was almost identical in 1976-78.

[J. J.]

Au @ $1605.1

Record high.

[J. J.]

We're not there, by a long shot.  Silver already corrected.

[J. J.]

The question is not not so much if this is a bubble, but, if it is, what end of the bubble are we at.

In the analogy with the late 1970's, both Opebo and Memphis fail to realize that gold started up in 1978.  On the first day of trading (FDT), 1978, it was around $170. On the last day of trading (LDT), 1978, it was around $225.  From 2/1979, gold has never been below that. If you bought at the start of the bubble, and didn't sell at all, you still had your value.

There were also market corrections in 1978.  Gold dropped at one point to $158.  It hit $245, before falling.  If you bought gold in 1978, even at the high point, and held it for longer than a year, you still retained your value.

In terms of gold percentage increases, 2010 looks a lot like 1978.  The bubble burst in January 1980.  Had you bought gold in July 1979 ($300, held it for a year, and sold it in July 1980, you still made money.  You would have roughly doubled your money.  There were points after that, very long term, when you couldn't, but even after the bubble burst, you could make a fair amount of money.


We might be in a bubble, but, if so, we are probably at the start of it.

[J. J.]

Gold has been holding above 1450 for more than 30 days.  The edges of the bubble have not reached full expansion.  If you are willing to engage in arbitrage, and forgo a lower capital gains tax rate, it is probably a good investment now.

[J. J.]

Had you bought gold on the first trading day of 2011, and sold it today, you would have made a in excess of 15% profit.  Ironically, if (or should I "when") there is a bond ratings downgrade, you might see a another 5%-15% increase.

I am sooooo happy I bought silver at $5.50. 

[J. J.]

You must be logged in to read this quote.

Couldn't resist.

[J. J.]

The question is not not so much if this is a bubble, but, if it is, what end of the bubble are we at.

In the analogy with the late 1970's, both Opebo and Memphis fail to realize that gold started up in 1978.  On the first day of trading (FDT), 1978, it was around $170. On the last day of trading (LDT), 1978, it was around $225.  From 2/1979, gold has never been below that. If you bought at the start of the bubble, and didn't sell at all, you still had your value.

Of course what YOU fail to realize is if you simply put the same amount of money into a broad based US equity index fund you would have made a heck of a lot more money than someone wasting their time with gold.  No investment (or speculative vehicle) exists in a universe by itself.  There is ALWAYS an opportunity cost for doing foolhardy things.

I don't know of anything else, other than silver and possibly some specific IPO, that would increase 18% in value in the past 7 months.

[J. J.]

That's pretty normal for a speculative bubble.  The same thing was said about tulip bulbs at one time.  Putting money into an asset for 7 months is NOT investing.  That is speculating.  The very fact that you had to cherry pick a 7 month time period tells me your strategy is flawed.    You started off with an example from the 1970s.  I quite easily debunked that myth.  So you cherry picked a 7 month period.  This is NOT how you invest.  This also clearly illustrates why I think privatizing social security or rolling back the social safety net is a bad idea.  Everyone THINKS they know how to invest, but they don't.  If we give all the social security taxes back to the people they will blow it all on Glenn Beck Goldline recommendations.  They would have blown the money on internet stocks, then reits, and now gold.

Except that we only seem to be entering the "bubble." 

No, I didn't "cherry pick" anything.  Opedo defined when the "gold nonsense" began.  I looked at the prior run up.  We are basically lower, as a percent increase that we were Jan-July 1979.  Gold didn't spike until January 1980.  It looks like there will still be a run up, so, on a short term basis, it probably makes some sense to buy (if you are not worried about income taxes).

Had you done the opposite of what Opebo suggested in December 2010, you probably could made a good long term profit (taxed as a capital gain), by selling January 2012.

[J. J.]

That all very well may be, but it's not investing.  Its market timing and speculation.  There is nothing wrong with that if you can afford it, but it is a reckless thing to do for most people.  Study after study has proven that market timing and speculation by amateurs is a losing game.

That all is.  You could say that about any investing.  Obviously when Opebo gave the advice, it was wrong.  Now, long term, I don't think gold is a good investment at this point.  Short term, less than a year, it probably is.

If I could buy a gold contract for August 2, 2012 for the close on January 3, 2011, I would.

[J. J.]

Doesn't all of this just miss a simple point?  In particular, when something is in a bull market, you invest in it.

Gold is obviously in a bull market, and I don't see the mania phase yet (which almost always tops commodity bulls), so you invest.

Well the question is, was it a good investment at the start of the year and is it now.  Based on history, I'd say yes.

I wonder whose sock puppet "Link" is?

[J. J.]

Gold closed at $1661.10.  It was at $1421.60 on 12/31/10, which Opebo thought was too high.

[J. J.]

Gold closed at $1661.10.  It was at $1421.60 on 12/31/10, which Opebo thought was too high.

We get it. He didn't time the peak right. Get over yourself already. There's no way to know exactly when a bubble wil burst.

I think we're entering the bubble.  Had you bought gold on 12/31/10, and you sell it at its peak, you would probably be able to treat it as a capital gain.  I would be surprised it it was still going up on 8/2/12.

You know, this is the second time you've done this this week.  I use someone else's parameters, and you complain about that parameter.

[J. J.]

Gold closed at $1661.10.  It was at $1421.60 on 12/31/10, which Opebo thought was too high.

We get it. He didn't time the peak right. Get over yourself already. There's no way to know exactly when a bubble wil burst.

I dont think gold is in a bubble.  we're out of fiscal bullets, so all that is left is QE3.  The Euro is screwed and business is going to suck.  Glad I am not Obama.

Actually, the gold market looks remarkably like it did in 1979, except it is not quite increasing at the same rate.  In 1979, it started at about $235, then rose to about $300 in July; it retreated in early August to about $280, then soared until January 1980 to $850.  That was about a 27% increase.  Gold, since 12/31/10 has increased about 20%.  

I think there is the starting of the bubble, but it could easily peak at 175% the 12/31/10 price.

Bluntly, I think we're look at gold above $2000 per Troy Ounce, if not above $2500 in the next six months.  It won't stay there, but I'd still rate it as a hold at this point.

[J. J.]

Give him a break, defending opebo has got to be one of the hardest things a lefty does around here.

He was trying to defend the New York Times by doing the same thing on another thread.

[J. J.]

If that's what you believe, please put all your money into gold.  You really can get double digit gains forever. It's truly an excellent idea to buy a commodity when it's the hot thing that everybody is talking about and is very expensive. I also have something else to sell you that's an equally amazing opportunity:

I wouldn't say put all your money in anything, but I'd expect gold to peak above $2000.00.  The problem is, it will probably do so within a year.  You'll get hit by a high tax rate on it, if you sell at peak.

Memphis, I'll make a deal with you:

If you will sell me ten ounces of gold today, at the close on 12/31/1978, adjusted for inflation, I'll buy it.  And I'm such a nice guy, I'll give you 10% on top of that.

I won't give you the 10%, but if you will sell me 5 ounces at the closing price on 12/31/10, when Opebo told us the the "gold nonsense" was over, I'll buy it.

[J. J.]

I think we're entering the bubble.  Had you bought gold on 12/31/10, and you sell it at its peak, you would probably be able to treat it as a capital gain.  I would be surprised it it was still going up on 8/2/12.

As long as you held it past 12/31/11, sure.  If the prices hold up that long.

I think the peak will come sometime after 12/31/11.  By 8/3/12, it might still be higher than today, but I'd expect it to be off of the high price.

[J. J.]

I think we're entering the bubble.  Had you bought gold on 12/31/10, and you sell it at its peak, you would probably be able to treat it as a capital gain.  I would be surprised it it was still going up on 8/2/12.

As long as you held it past 12/31/11, sure.  If the prices hold up that long.

I think the peak will come sometime after 12/31/11.  By 8/3/12, it might still be higher than today, but I'd expect it to be off of the high price.

Well, as you probably know, if you sell the gold before holding it one full year...you have to treat it as ordinary income (STCG) as opposed to a capital gain (LTCG).

Yes, that is why I use the one year benchmark.  I think there is bubble forming but we're not at the upper edges of it.  I think we'll see:

1.  Gold will peak in the 1st Qtr. of 2012.

2.  Gold will peak above $2000, possibly well beyond that.

3.  On 8/3/12, gold will be higher that on 8/3/11, but it will be off the peak.

If I'm correct, if you bought gold when Opebo called it "nonsense," you could sell at the peak, make probably a 45% profit, minimum, and be taxed at the lower capital gains rate.  If you bought when we all started pointing out wrong Opebo is, you could either:

A.  Sell it at peak, and make a smaller profit, and pay a higher tax rate.

B.  Sell it after peak, make an even smaller profit, but pay a lower tax rate.

[That kind of means we are just smarter than Opebo; it doesn't mean we're particularly smart.]

[J. J.]

Prediction:  on 12/30/11, gold will close between $1770 and $1850 per Troy Ounce.

[J. J.]

Gold down $12.80 to close at 1648.80.  It was less than a 1% drop.

I hold with the predictions.