Jump to content
Objectivism Online Forum

Gold blowing up

Rate this topic


brian0918

Recommended Posts

You should consider hearing what Peter Schiff has to say about gold and the dollar. He expects gold to be well about 4000 in a few years, as far as I heard. The Chinese government is encouraging their citizens to buy gold and silver, they probably will dump the dollar one day.

Regarding investments, I am not really rich, but I bought some Barrick Gold in May.

I also followed Schiff's advice to invest in Hong Kong's Skyworth Digital. This stock is up 186% since May.

Link to comment
Share on other sites

Is there a short explanation for why one would buy the gold-miner rather than gold itself?

Not necessarily instead of gold, but it stands to reason that if gold prices and demand go up, so will the profits and stock values of gold mining companies. I assume this holds true of gold dealers as well. Oh, and buying stock may be easier or just plain more affordable than buying gold. Also, you don't need a vault to keep your stock shares safe.

Link to comment
Share on other sites

Not necessarily instead of gold, but it stands to reason that if gold prices and demand go up, so will the profits and stock values of gold mining companies. I assume this holds true of gold dealers as well. Oh, and buying stock may be easier or just plain more affordable than buying gold. Also, you don't need a vault to keep your stock shares safe.
Thanks for the reply.

Buying the company is buying a composite:

  • the company's gold; and,
  • the companies unique profit-making abilities.

If keeping physical gold is not an issue for a person (or if the person trusts some Gold pool or something like GLD), then the first one would not be a factor in favor of buying the gold-miner. In fact, to the extent that a particular miner has hedged future sales, one would expect inferior relative performance on the "gold-asset" factor.

I understand that some folks may not want to buy and store gold, or that they may not trust GLD etc. So, I see that a miner would be attractive to such a person. I was wondering if the second factor is at work in some people's minds, and if so why.

Link to comment
Share on other sites

Not necessarily instead of gold, but it stands to reason that if gold prices and demand go up, so will the profits and stock values of gold mining companies. I assume this holds true of gold dealers as well. Oh, and buying stock may be easier or just plain more affordable than buying gold. Also, you don't need a vault to keep your stock shares safe.

True. Schiff writes in 'The Little Book of Bull Moves in Bear Markets' that "mining stocks offer the prospect of income and capital gains magnified by leverage, and are potentially the most profitable way to play gold and silver." He also says: "And in 5 or 10 years, look for a mania that makes the NASDAQ-bubble seem like a warm-up."

Consider these stock suggestions: http://inflation.us/stocks.html

Regarding the real stuff: I bought physical silver, I can't spare enough to buy physical gold.

Link to comment
Share on other sites

He's the reason I know to follow any of this.

Ah okay, sorry. Then you are already following him.

I just read the first statement in which you said that you were surprised. Following Schiff's comments since I first heard about him in October 2008 I am just surprised when I wake up and Gold didn't go up. :lol:

Link to comment
Share on other sites

I have approximately 70% of my metals-based portfolio in mining stocks, at the moment. Ivanhoe Mines (IVN), Entree Gold Mines (EGI), and Endeavor Silver Mining (EXK), especially, are doing very well. IVN has doubled in something like 3 months!

Precious metals themselves are nothing more than leverages against inflation. It's a fear-based investment, to protect one's investments from devaluing due to rising inflation. That doesn't downplay their significance, as you will be all the richer for owning gold and silver, but the mining companies have the potential to actually deliver huge profits and large dividend yields. They won't just maintain the value they were purchased at; they can give you huge returns (much bigger than the metals on their own). If you bought gold 3 months ago, you didn't make much money today. But if you bought Ivanhoe Mines, three months before their landmark deal with Mongolia, you made 100% on top of what you invested.

By the way: It's very possible that silver will outperform gold in the coming years. Lot's of literature on www.inflation.us regarding that possibility.

Link to comment
Share on other sites

If the point is simply to leverage against inflation, wouldn't UDN make the most sense? It shorts futures contracts on the U.S. dollar versus other currencies... I guess that depends on whether you also think other currencies will devalue.

Other currencies will always change in valuation. And since currencies are fiat, they will change only due to policy decisions and conditions of the country of that currency's origin.

Other currencies will do very well in the future, but they have the same intrinsic risks as any currency, including the USD. Precious metals have a value that does not fluctuate or change. The purchasing price may change due to variations in the currency used to purchase it, but that is separate from the precious metal's actual value.

Link to comment
Share on other sites

Precious metals have a value that does not fluctuate or change.

Well, they don't have any intrinsic value, of course, it's just that you can't spit out artificial bars of gold like you can dollar bills (ask the alchemists of yore about that). The total amount of gold is pretty stable.

Link to comment
Share on other sites

If you bought gold 3 months ago, you didn't make much money today. But if you bought Ivanhoe Mines, three months before their landmark deal with Mongolia, you made 100% on top of what you invested.
I have no idea about this company (IVN), but doing a quick lookup, I see that they have underperformed GLD on a 2 year and 5 year basis. On a 5 year basis, IVN has just about kept pace with the S&P500 index.

In late 2008 and early 2009, one could have made the following argument: mining shares have fallen with other share prices, while gold has not fallen as much. However, the value of the miners is strongly tied to gold. Therefore if one thinks gold is going to remain strong, there is far more certainty that the miners will bounce back. Even if gold simply stays steady, the miners will recover. Therefore, relative to gold, miners will do better.

If one had made that argument, then pointing back to the out-performance of the miners is a good way to show that you were right. However, that exact argument would not be true today. So, I'm trying to understand if there are reasons to prefer miners over gold today. Other than the idea that some people may not wish to hold gold, the other rationale is this:

...mining companies have the potential to actually deliver huge profits and large dividend yields. They won't just maintain the value they were purchased at; they can give you huge returns (much bigger than the metals on their own).
This assumes that the market is mis-valuing these companies. Why? What aspect does the market not recognize? Does the market price assume gold won't go up as much, or does the market price assume these companies will be less efficient than they really will be?
Link to comment
Share on other sites

I have no idea about this company (IVN), but doing a quick lookup, I see that they have underperformed GLD on a 2 year and 5 year basis. On a 5 year basis, IVN has just about kept pace with the S&P500 index.

In late 2008 and early 2009, one could have made the following argument: mining shares have fallen with other share prices, while gold has not fallen as much. However, the value of the miners is strongly tied to gold. Therefore if one thinks gold is going to remain strong, there is far more certainty that the miners will bounce back. Even if gold simply stays steady, the miners will recover. Therefore, relative to gold, miners will do better.

If one had made that argument, then pointing back to the out-performance of the miners is a good way to show that you were right. However, that exact argument would not be true today. So, I'm trying to understand if there are reasons to prefer miners over gold today. Other than the idea that some people may not wish to hold gold, the other rationale is this:This assumes that the market is mis-valuing these companies. Why? What aspect does the market not recognize? Does the market price assume gold won't go up as much, or does the market price assume these companies will be less efficient than they really will be?

I didn't mean to say that IVN has been outperforming GLD for any length of time other than the time period I specified. I was not involved with this company until a few months back when I purchased it at $~4, and now it's at $~12.60.

Mining companies usually do not focus on just one material. In the case of Ivanhoe, they do gold, silver, platinum, copper, etc. Also, they earn money not just from the product they sell, but also from how they produce the product they sell. Productive and financial innovation among companies like Ivanhoe Mines allows their valuation to be more than just the product they produce, but also the methods they utilize to do so. In other words, competition is added, making the playing field more volatile, and also giving the potential for earnings more than what is possible through mere leveraging of inflation (i.e. gold).

Outstanding companies can retrieve outstanding valuations. That's why not just any old precious metals and mineral mining company struck a deal with the Mongolian government for their vastly untapped repositories - Ivanhoe did.

Link to comment
Share on other sites

How about gold and silver coins as an investment? Does their value also go up regardless of their numismatic value? I spek of things like commemorative silver and gold coins issued by state mints. In Mexico that's possibly the easiest way to obtain gold and silver.

As an aside, during my brief period of coin-collecting I got silver commemorative coins of the 68 Olympics and the 86 World Cup.

Link to comment
Share on other sites

If you can get those for close to melt (i.e., close to the value of the gold or silver in them) you are doing OK. If you buy directly from the mints you are probably getting raped.

A "generic" gold coin like an old US $20 gold piece will tend to go up and down as gold does although some percentage of its value will be collector value and will not change. If you can lay hands on krugerrands, modern US Eagles, Canadian maple leaves, etc., you will be better off.

Link to comment
Share on other sites

How about gold and silver coins as an investment? Does their value also go up regardless of their numismatic value? I spek of things like commemorative silver and gold coins issued by state mints. In Mexico that's possibly the easiest way to obtain gold and silver.

As an aside, during my brief period of coin-collecting I got silver commemorative coins of the 68 Olympics and the 86 World Cup.

Among the SHTF (shit hits the fan) speculators, they have generally concluded that you should collect coins that people reliably know/trust to be true silver/gold. Most people, for example, don't know that older nickels, dimes, half dollars are mostly silver, and if you tried to trade with them that money (when the SHTF), they wouldn't believe you. So go for the well-known gold and silver bullion stamped e.g. ".999 fine". You would also want smaller denominations of it to be able to buy smaller goods easily and use them in everyday purchases. This is all speculation, of course. Ground zero for the SHTF crowd: Real Cent Forums.

Edited by brian0918
Link to comment
Share on other sites

Is there a short explanation for why one would buy the gold-miner rather than gold itself?

Yes. The reason you would buy a mining company is if you were looking to leverage gold without buying an options contract. I mean, it's not EXACTLY the same, but the miners tend to move several times the price of gold.

On the other hand, everything is denominated in fiat currency. So, if you want to buy real value, buy the commodity. Gold is cycling again. There are some good and bad reasons to own the metal right now. October is traditionally when gold is at its highest. Next month is when gold traditionally backs down. If that holds, then this will just be another cycle. Is the sky falling yet? I don't think so. However, I think we all know where fiat currencies eventually end up so gold isn't a terrible play.

I use companies like Kitco and Goldmoney.com for myself and clients. It works well, and the people running those organizations are what was left of the smart guys and gals at Morgan Stanly and Chase Manhattan as well as several large mining companies.

Link to comment
Share on other sites

How about gold and silver coins as an investment? Does their value also go up regardless of their numismatic value? I spek of things like commemorative silver and gold coins issued by state mints. In Mexico that's possibly the easiest way to obtain gold and silver.

As an aside, during my brief period of coin-collecting I got silver commemorative coins of the 68 Olympics and the 86 World Cup.

Gold is not an investment, not the metal anyway. And, it's not a great way to think about a commodity. The nature of a commodity as an investment is quite peculiar. In the case of gold, it is really one of a few objective measures of value. So, if you are going to buy it, buy it to preserve your wealth, as a way to save money. Just remember that the reason the price of gold appears to "fluctuate" every day is because it is denominated in terms of fiat currencies. So, ask yourself: is it gold that's fluctuating, or is it really the value of the currency?

Link to comment
Share on other sites

It's some of both, IMHO.

Certainly the big spike in 1980 cannot be put down solely to the dollar losing 5/8ths of its value in just a few months.... and then regaining it.

So sometimes gold does go up or down based on people chasing it as a fad. Supply basically fixed, demand variable.

One thing it won't do is go to zero. Unlike the fancy paper you have in your wallet, which has no value other than fiat. It's not even suitable for toilet paper; it's not absorbent enough.

Link to comment
Share on other sites

Yes. The reason you would buy a mining company is if you were looking to leverage gold without buying an options contract. I mean, it's not EXACTLY the same, but the miners tend to move several times the price of gold.
I've seen no proof of this. If one looks at very recent data, this appears to be the case, but all stocks got hit and bounced back. So, the recent (short-term) experience appears to be more a result of the fact that stocks dropped and bounced back relative to gold, rather than anything to do with mining companies.

I'm not familiar with mining firms, but I checked IVN, ABX and AU, and I find that all three of them have underperformed gold significantly over the last two years or more. Gold rose, and so did they, but they did not keep pace.

Anyone who thinks gold is really going up and who is thinking of a time horizon of upto two years would be far better advised being in options.

Edited by softwareNerd
Link to comment
Share on other sites

It's some of both

Nope, it's not. I promise. It's not an investment, it's simply a way to preserve the value of your fiat currency (at this point in time). I say simply, though that does not imply that it is somehow inferior to an alternative. Gold really only functions as a savings vehicle at this point and hopefully at some point, it will be restored to its rightful place as money.

Certainly the big spike in 1980 cannot be put down solely to the dollar losing 5/8ths of its value in just a few months.... and then regaining it.

Yes you're right. It didn't "all of the sudden" lose value. However, when people recognize the value is what changes, or can change, quickly. A rise in gold would typically indicate the first wave of investors or savers (or institutions) recognizing a weakness in the dollar. Let's say that money is being printed at a rate which effectively doubles the money in circulation. I'm sure you don't need too much of an imagination for this...as soon as people realize this, they head towards commodities that offer stability - i.e. gold. The fact of the matter is that the currency has already lost its value with the printing of the money - de facto. This is what happened in 1979 after an average rate of inflation of maybe 3% prior to that. In fact the FED's San Fransisco branch reports that inflation in '79 alone skyrocketed to over 10% (http://www.frbsf.org/publications/economics/letter/2004/el2004-35.html). But, prior to that, there was a steady, albeit "low", inflation of the money supply.

Yes, some exciting things happened when I was born. I didn't know people would make such a fuss about it...but in truth, do you think, coupled with a dramatic rise in oil prices in a very short period of time and the state of affairs in Iran at the time, this could cause people to get a little jumpy? I think so. Lots and lots of people moved to gold, causing a temporary "self-fulfilling prophecy" before the metal calmed down. But, the damage from inflation was done, which was the real cause, and you saw a dramatic real rise in the price of gold from $35/oz in 1971 to $587.50 on Jan 1, 1981. It then went into a slow downward trend after that for some time while the big "G" was cooking up another scheme to save the world. But, during the 1980s, you really didn't make any money with gold in terms of dollars, but you did preserve the value of your money from erosion. The 90's weren't all that hot for gold either, as an investment. You'd have done better with tech stocks, much better.

So sometimes gold does go up or down based on people chasing it as a fad. Supply basically fixed, demand variable.

I agree that some people do buy gold as a fad, sometimes.

One thing it won't do is go to zero.

I agree. I think it represents what Ayn Rand called a "philosophically objective value" in a broad sense. In a narrow sense, it's easy to see it as a "socially objective value", which would cover your statement about it being faddish at times.

Link to comment
Share on other sites

I've seen no proof of this. If one looks at very recent data, this appears to be the case, but all stocks got hit and bounced back. So, the recent (short-term) experience appears to be more a result of the fact that stocks dropped and bounced back relative to gold, rather than anything to do with mining companies.

I'm not familiar with mining firms, but I checked IVN, ABX and AU, and I find that all three of them have underperformed gold significantly over the last two years or more. Gold rose, and so did they, but they did not keep pace.

Anyone who thinks gold is really going up and who is thinking of a time horizon of upto two years would be far better advised being in options.

Except that most options contracts expire after 3 months, and longer ones expire after 6, unless you are buying LEAPS. And, if you are not careful with options, and accidentally write an options contract instead of buying one, you face unlimited loss potential. They're not for amateurs, IMO.

As for the mining companies, I said it wasn't EXACTLY the same. But, the right mining company will move a few paces ahead of gold. At least, it's happened before, though as I said, it doesn't happen as a rule of thumb, or because it has to happen that way. They can trail the metal for various reasons. One of the big reasons has to do with how they sell the gold. Do they lock in a set price for "x" number of years, or do they sell at the current rate? That can make a huge difference between the stock staying ahead of gold or languishing. And, they go in cycles. So, you may only hold the company during the times of the year when production is up. When it's out of season, you sell, or lose money as the stock price retreats for the year. And, are they doing business in foreign countries that have a record of nationalizing businesses? That's not going to do wonders for you as a shareholder.

Lastly, as a counter to your example, may I present Iamgold, Coeur D’Alene Mines, and New Gold?

Link to comment
Share on other sites

I'm serious here, I think you should read this webpage about the performance of gold and what it's indicating now. I found the article very enlightening.

It's called "Gold is Speaking." Here is a brief excerpt:

In the current global manic rush by central banks to inflate and by governments to spend that paper, there are a few observers who have expressed concern that at some future date this wholesale, last ditch Keynesian and Statist approach just might actually produce "inflation."

...

So, with that as a backdrop, what has been going on with the various "asset classes" in recent years? And especially, what if anything does gold tell us about the risk of inflation? Is it really the quiet unconcerned metal that these State apologist economists claim? Historically gold is a wise metal that often anticipates inflationary and deflationary trends; defining inflation in the Austrian School manner – as growth in the money supply (s), which we now must think of globally, not merely as a U.S. monetary and fiscal event.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...