If you tear yourself away from the spot prices for the time being, this could be something interesting to talk about. But, I have noticed that people usually don't want to talk about the topics I bring up. I'm not sure why. But, lets consider this. The price of PMs are related to the dollar index.....or so we are told. As the dollar index goes down, the prices go up and vice versa. So, taking this logic, the dollar index multiplied by the price of PMs should remain a constant. Let's examine. Three weeks ago, on January 14th, the dollar index was 76.75. The price of gold was $1138.25, and silver was $18.58. Gold works out to be 87,360 indexed dollars. Silver works out to be 1426 indexed dollars. So, to get the appropriate price of gold and silver, all one needs do is divide the indexed dollars price by the new index, to get dollars. The current dollar index is 79.40 Gold works out to be $1100.25 Silver works out to be $17.95 It is obvious to me that something else is influencing the markets, and not just the dollar index. I don't have any proof, but I believe that the liquidity has run out. Banks were given a lot of money to correct people's housing mortgage loans, and to lend to new private business'. However, many mortgages weren't refinanced and banks aren't really loaning out the money. I've speculated where that money has gone, and I said, bankers are investing it in the stock market, artificially propping up prices, like a crippled man on crutches. What I suspect is happening, is that money given to them by taxpayers is now running out. There isn't any more money to invest, and so nothing to prop up the prices. Since no new money is being invested the price has only one way to go, or it could trade sideways. But in order for it to trade sideways, there has to be fundamentals to support it.....like jobs and consummer confidence, which at the moment is lacking. Many investors have stops. When the price goes below a certain value, they sell to avoid taking any further losses. As they sell, this drives the price down even further, which triggers more people to sell since the price has now dropped below their stop. This drive the price lower, which caused more people to sell since the price has now hit their stops, which causes the price to go....................... Discuss.
Okay, I will bite. 87,000 or whatever, indexed dollars is an interesting way to think about it. Gold is a hedge against USD devaluation, but the correlation is not always perfect on a daily basis. (For instance, on some days, gold and the USD go up together.) If I read you correctly you are saying that gold is now tied to the stock market. I would agree with that. Recently, equities corrections take the price of gold and silver down with them. Owning gold and silver has felt like owning little shiny round pieces of stock recently, a strange feeling for someone raised in an era when gold was used to hedge against stocks. One explanation is that when people get margin calls on market down days they sell everything, especially gold and oil to cover their stock losses. The advantage to owning physical coins is that you probably didn't buy them with leverage.
I like this thread and I hope more can keep it going. I'm not savvy enough to contribute but I'm posting to keep it bumped. I don't like seeing the price of gold going down when the DOW goes down. I suppose that could be the selling of GLD stocks which then reflects on the price of gold? I don't know... But I would like to continue to believe that when the dollar USD and DOW goes down, that gold is a safe haven for us...
The idea that gold [and silver] were somehow a constant value and that it was really the dollar that was flucuating seems to be an idea first proposed by the internet gold gurus, and subsequently treated as gospel with nobody ever providing any solid evidence. But gold and silver have their own supply/demand functions that would fluctuate regardless of the soundness of the currency they are measued in. If you add in the fact that most gold trading is done in the futures and leasing markets with leverage, and not the physical market for cash, it is virtually impossible that the metals would have a fixed value to the dollar. So it is really a combination of factors that goes beyond the change in value of the dollar vs other currencies that are also changing in value. Maybe the dollar didn't go up. Maybe the Euro went down. Maybe a large gold trader lost his line of credit. Maybe a bunch of technical funds trained in the same technique used the same chart to make the same decision on the same day. Maybe some institutions are selling to meet redemption requests. It's a hall of mirrors, and there is no way to really measure it.
one thing I am puzzled with is the correlation between the gold price and the stock market. Recently it seems there is a positive correlation between the two, that is, if the stock market goes up, then the gold price goes up, as well, and vice versa. But why?
Perhaps when the DOW is doing well, so are most gold stocks? Then if it goes down, most stocks including gold go down? It would be interesting if "paper" gold were not traded on wall street. I wonder what the price of gold would be?
the euro has gone down lately. why i dont know the us had as of last year $1.4 trillion this year $1.6 trillion of dept. greece i blame. now we have spain and portugal adding to the fray. and yet sovereign bonds are takeing will all take a hit just read. http://www.moneyandmarkets.com/the-next-contagion-2-37578 i hope this link works
The fear is that several Eurozone countries may default on their debt. If they do, it will effectively end the Euro as a currency, and money is flowing into the dollar just in case. Is this reasonable? I have no idea because I haven't followed it close enough to have an opinion. But it's "hot" money, and could leave as quickly as it arrived.
i agree with you 100%. none of us nowhere this is going to go. but it seams like we should have our eggs in many a basket. dave
I haven't decided yet. The majority of asset classes look very weak right now, so diversification might not work well over the next few years. I don't recall a time during my life when NOTHING was a good investment, but the present situation is a tough nut to crack. It would be an interesting puzzle if so much wasn't at stake.
It's very simple and it's all about the dollar. When the dollar goes down, U.S. stocks are less expensive for foreign buyers who have more purchasing power with their stronger currencies. Also, a weaker dollar makes our exports cheaper. In addition, U.S. companies (e.g. Colgate, Proctor & Gamble,etc.) who do business in foreign countries get paid in those currencies which can help their profitability. Lastly, there's the dollar "carry trade". You borrow dollars at a very low interest rate, turn around and invest these dollars. At the same time, you "short" (a bet that the dollar will get weaker) the dollar. If this works out to perfection if the dollar continues to weaken, then you book two profits. One is on your investment, the other one is on the trade you did to "short" the dollar. However, this trade can go very wrong as evidenced by Thursday's market. The dollar got stronger and stocks went down. If you were using a carry trade strategy, you got killed both ways today. The gold trade is again..dollar related. If the dollar weakens, it takes more dollars to buy the same amount of gold, hence the price of gold rises. Lastly, gold is considered a risk asset. When the stock market goes up, there's a greater chance that the economy will overheat, inflation will result and gold will benefit. In a market like Thursdays which was risk adverse, gold was down as much as $50.00 as investors sold risk assets, namely stocks, commodities and gold. Hope this helps..
Gold is more tied to inflation and currency price than anything else. Today big news as 2 more european countries might default on their debt. there is a market called the forex market. It is the foriegn exchange market for world currency. I use to dable in it with a friend and got out of it because the volitility of that market is just way to much to handle. anyway. Gold and the commodity market as a whole took a hit because people started selling euro's off and buying dollars. which increased the price of dollars which caused people to dump commodities as well. commodities are used as a hedge against inflation and the devaluing of the dollar. I think this is just a short lived thing. Dewy is already threatening the US credit rating with harsher language unless congress starts getting the deficit down. overall the stock market took a beating and a half today. 268 points down because of europe and the over all job market. People will return to gold and precious metals soon more so if the US gets it's credit rating dropped. if that actually does happen then you will see a surge in PM's.
Interesting thread. It looks like silver is dropping fairly rapidly when you look back a few weeks when it was $18. Gold is still up over $1,000 which was the benchmark everyone wanted to see. So all this is boiled down to 3 choices: Sell, Buy or Hold. Well I'll decide what to do in a week or two. But I said that every week for the past 5 months! So I did sell a little silver and bought a wee little gold.
A good observation......in synch with mine.. Paul McCulley, the chief economist of PIMCO wrote last year that this year's market resembled a school cafeteria where nothing looked all that appetizing. So defensive seems to be a good strategy because there isn't any asset class that's going to score a home run, since most of them were priced up in last year's market. Personally, I have 75% of my retirement in an extremely diversified world asset allocation mutual fund. Symbol is PAUAX. One of the unusual features of this fund is that the manager can run a "short" position that can be as much as 20% of the fund. He's currently running around 16.5%. The S&P was down over 3% on Thursday, but this fund was up about .7% due to the "short" position. In 2008, when the market was getting creamed to the tune of minus 35%, this fund was down only 7.5%. In 2009, you would have completely erased that deficit since it was up over 18%. For most of 2009, the manager did not employ a short position.This fund pays a quarterly dividend. It's conservative in nature, which suits me since I'm at the point where I will not have enough years to ride out any serious roller-coasters that could severely damage my portfolio. For 2010, I would be happy with a 5% return. Since I have now gone so far off topic that this thread could only be seen by a Hubble telescope, I'll reel in a bit and say that the only reason I'm holding on to a 5% position in Gold is simply for "insurance". There is a level of uncertainty regarding any number of potentially catastrophic occurrences that could undo the markets. Since I think uncertainty will hang around indefinitely, I'll stick with this PM allocation regardless of the daily swings in price.
Price and real value are not the same. In reference to Gold - the dollar is nothing but a standard unit of measure of price. You can substitute the dollar for any other standard of measure of personal preference. The gold/silver ratio is one example. You can substitue the standard of measure with barrels of oil, bushels of corn, British Pounds, and so on. Computing the price of an asset based on a standard measure isn't difficult. Determining the real value of that standard is a different story. Adjusting the measured dollar price of Gold with the DIX will not necessarily immediately return gold's true value being that the DIX is only an indicator of the dollar's value in relation to other world currencies.
I wouldn't really be interested in PAUAX. It looks like a fund of funds with two layers of management fees and a front end load. The stock is lower than it was 4 years ago. It isn't the type of investment approach that would interest me, although it might do better in the future. I'm not sure how a global income fund could have lost money over its life when interest rates and the dollar have both been trending down.
As long as gold is tied at the hip to the stock market, and both are trading inverse to the dollar, gold will most probably continue down. This gives us a "buying opportunity" if we want it. Diversification can be the worst strategy in a prolonged period of deleveraging which takes everything down together. The only “safety” at that point is usually cash since everyone races back into the US dollar. (Unless you are in a well-managed short fund, or are a good trader yourself.) However, this US Dollar strength could turn on a dime. And personally, I don't like the outlook for the US dollar in the long term. Which is why I would not sell my physical metals even though they trade as risk assets in this environment. Just my opinion of course.
Here's the link to this fund. I'm not sure how you're calculating share price, but the only losing year this fund had was in 2008 (-7.5% vs. -37% for the S&P). As I mentioned, it pays a quarterly dividend and with this mutual fund (as with many others) long and short term gains result in a re-distribution at year end. At this point, the share price goes down, but you end up with more shares. The upfront load on this fund recently changed from 3.75% to 5.5% which you can avoid by purchasing "C" shares PAUCX,(no upfront, but somewhat higher internal fund expenses). While I can appreciate the concern for fees, from my experience, most investors would be better off buying the plane built, rather than attempting to assemble their own, especially in a market that's as difficult to navigate as this one. I see this fund as ideally suited for a difficult market with headwinds. I particularly like the fact that a position "shorting" the S&P can be part of the mix if the manager thinks conditions warrant its inclusion. Last year when the market was underpriced, I had 20% less in this fund. I should disclose that I've worked in the investment business for 10+ years. I can tell you that most financial advisors would not recommend this fund simply because they want clients to believe that are the financial alchemists that can put together the magic brew (most cannot). With this fund, it's pre-assembled by a very talented manager Robert Arnott who is constantly re-balancing the fund investments. At any rate..off topic again! It's always good reading and your posts, they are sharp, well thought out and generally thought provoking. :thumb: http://www.allianzinvestors.com/mutualFunds/profile/PMAAAA/performance_C.jsp
The 6.3% three year annualized return is running about a full percentage point behind plain old investment grade corporates, probably due to the expenses. But if you are happy, that's what counts.
