why is gold and silver going down right now?

1000% agree. Unless there is some kind of extraordinary tax situation, "its ok if it goes down since I am ahead" is a bad psychology to get into. If you truly expect something to go down, sell today! I don't care if you made 3,000% return on it before, why knowingly accept a loss?

Now, a loss on a coin doesn't concern me since I consider that money "spent" or "consumed" the moment I bought a coin for my hobby.

 

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I bought 6 oz. in 2008 @ $1008. each. Sold 1oz, Dec 2011 @ $1804. - ebay fees. I did submit my records to my tax accountant and claimed the net profit.
(Kind of like going to the dentist)
Since Dec.2011 gold has remained approx $150 below that high and interest rates have not changed. Some in this community now believe there is no reason why interest rates should not rise and I'm starting to believe the stagnet gold prices reflect this concern.
Ohh, what should I do?
Well, I'm holding my gold based on this online ouija board. http://www.brainjar.com/dhtml/ouija/

 

Agreed. But then I don't buy gold as an investment. I buy gold as a way to hedge against my investments. Presumably, if I'm taking large losses in gold, it's because I'm taking large gains somewhere else.

 

That is fair sir, but always be ready to pull the trigger if you really believe you know something. I use PM as a hedge too, but if it skyrocketed to $2200 and I really thought I KNEW it was coming down, I would sell and wait to buy later. Same with if it went way low in my eyes, I would buy more than my hedge position.

Do you see the difference? If you are just holding to hedge, and do not have a strong feeling about where its headed, you are fine. We are just saying if you really believe you can see the movement, do not be afraid of profiting from it temporarily knowing long term you will go back to your normal hedge position. Two different scenarios.

Not trying to speak for Cloud, but I believe this is what he means.

 

Yup. Opportunity Cost, and Length of Term: two very important concepts.

I sometimes think of it like a Product Life Cycle (acquisition, growth, maturation, disposition).

 

The problem is, I'm a lousy guesser as to the movement of the markets. Odds are, I'd sell just before gold prices really took off or buy just before gold prices hit the skids. Based on my experience, I'm better off just buying gold and holding on to it.

 

Average your cost, buy a little over time and then sell the most profitable?

 

I suck too. I do the same as you. We both are in the "don't know, so just hold it" category. I think Cloud was saying if you see a loss coming, you step out of the way, is all.

 

These are all great points, and that the concerns you had back in the 70's are still concerns today shows that they can coexist with a decline in precious metals. However, the run up in silver back then was due to a cornering in the market, which is different than today where we have a global investment class with a much lower amount of metal available on the market. The subsequent crash was due to this market cornering using leverage and being squeezed out by changes in the rules. So back then silver was overvalued, but today I contend it is undervalued even at a similar price, and this bull market has a lot more longevity than back then as well. I do believe that it is inevitable that fiat currency will become worthless, but will it take 5 months or 5 decades? Nobody can say for sure. I am comfortable taking a hit on my metal if it means that I never have to worry about holding an empty bag.

Also relating to your mention of the tech stocks, that collapsing bubble was mitigated by the housing bubble, and that collapsing bubble was mitigated by money printing. There is no new type of bubble that can prop the current one up when it loses its air. This is the culmination of the bubbles that can only be perpetuated by continual money printing, or else raising interest rates to the point where existing debt will cut into profits to the point of damaging businesses that are barely hanging on. Only this time it's not just our stocks or our homes at stake, but our purchasing power which effects everything.

 

Really? You are saying asset bubbles are from here on out extinct?

Whew, that is a load off my mind then.

Btw the housing bubble did not prop up the tech stock bubble, housing did not start going up appreciably until after 9/11.

 

Let's see if I can be more articulate. There has been a succession of bubbles drawing in people's money throughout the last 12-13 years. Maybe not direct succession, but the pattern is there. The current bubble IS the money. There can certainly be other bubbles, but none great enough to prevent the impact from this one deflating other than more money printing unless we go to a gold standard. Gold could be the last bubble, but since it has an inverse correlation to currency it would only pop if buying power came back for other reasons. Alternatively if there is a deflationary default and all asset prices plunge, only tangible assets will ensure the value cannot go to zero.

 

I guess I disagree slightly sir. First, there have been asset bubbles cycling through the economy forever, its just the tech stock and housing were bigger than normal partly due to government ineptitude. However, it is important to not there was a 2-3 year lag between tech stocks and housing. Housing did not bail out the shambles of tech stocks, they were different incidents. Sorry to have been snarky on the earlier post, I just wanted to highlight we will have more asset bubbles, and partly have had one in commodities of all sorts the last few years. Farmland prices are through the roof, way in excess of any dollar weakening.

On going to a gold standard, I simply do not follow the dots how this will prevent asset bubbles or cure our fiscal policy. "Gold standard" does not mean much unless the exact correlation between dollars and gold are laid out.

 

It's clear enough the housing bubble was directly created by the Federal Reserve's interventionist (in the free market) polices. Alan Greenspan later admitted to it in 2008 in front of Congress and said he made a mistake. He said it was a mistake for him to believe that removing regulations from banking would result in the banks operating in their own self interest to protect share holders and institutions. He referred to it as a "flaw in the model".

I will contend that such power vested in one person is the flaw. It's simply impossible for one person to direct the economy of the USA but this is exactly what we have now. Did the central bank cause the tech boom. I'd say yes. This was done in part by the banks, in league with the government and big business, forcing people out of pension plans and into 401Ks. It's another "flaw" in the model IMO.

I do think we are at the point where if the Central Bank could cause another economic bubble, they would. But they have exhausted all their methods for doing so and at best can only paper over the damage they have already caused. The people have already been fleeced of their wealth so there isn't anything else left to take unless it's done so by more debt. I don't see much of that happening now.

 

I agree with your thoughts on the weakness of the Fed, but disagree on the tech boom and the ability of the Fed to recreate another boom. What did they do to promote the housing boom? Cheap money. How much does money cost today? This money is free to flow to commodities, farmland, many places and create a bubble.

The tech boom, to me, was mostly irrational exuberance. The Fed could have clamped down tighter on it, but it was more private money. I blame the SEC more, in allowing pre-trading and other things to "excite" the market.

Just my opinion.

 

I would never hold an asset that I expected to drop. Hedging is a good way to make sure you earn a small return, but will also prevent you from earning a large one.

 

You are mathematically correct, but I still like bld522's approach and do it myself. In the face of unknown conditions, I hedge my bets. I have been wrong as HECK before, but did not do too much damage due to hedging myself.

I simply do not wish to take huge risks with major money. Those who do and are right will be richer than I no doubt, but with the potential to have outsized gains comes risk of extraordinary losses. Not worth it to me, but to each his own.

 

Let me explain my thought process and take from it what you will. The housing bubble was bigger than the tech stock bubble, and the current bubble is bigger than that. Whether they are directly correlated or not, in spite of the fact that asset bubbles have been happening for a long time they are growing in magnitude which in my mind has a lot to do with the debt which is also growing in magnitude. I don't think we have to agree on the reasons behind these bubbles to say that they are indeed getting bigger. The current bubble being the money itself is of greater importance than any single asset could be IMO.

I did not mean to imply that gold will prevent asset bubbles, rather that it can stop the dollar bubble from deflating if they are ever pegged.

 

Neither would I. But then I don't think of gold as an asset. I think of gold as insurance with the added side benefit of having something most insurance policies don't have . . . intrinsic value. As with any other insurance policy, I hope I never have to rely on my gold reserves. But I'm sure glad they're there just in case I do.

 

But that is a characteristic of any bubble. There also has to be a reason for it. I'd say the impetus and the funding as well came from two things. First were the people being pushed into 401Ks. Their pensions got converted and all of a sudden they were forced to decide what to do with sometimes 10s of thousands of dollars. The money had to go somewhere. Money poured into wall street as a result.

The second was the almost overnight accessibility of the Internet via AOL, Netscape and dial up modems. All of a sudden day trading could be done in one's bedroom and people took the money from above and made big bets, on almost an hourly basis.

 

If you own physical gold and it is under your direct personal control, gold has another hugely important and often not appreciated property. It's not in the "system". This means your wealth, if you handle it properly is protected from all sorts of things that would take the rest of your property, assets, etc. away. For example if your wife divorces you because she found about your two mistresses, and gets a court judgment against you, she won't get your gold if she doesn't know where it is or that you even have it.