Skip to comments.Gold a hedge and no more - yet
Posted on 09/14/2009 10:54:58 AM PDT by BGHater
Even a rather wobbly reserve currency is a better asset than gold, whose price again crossed the US$1,000 mark last week.Gold is far less liquid than US Treasury securities,costly to store and insure,and above all far more volatile in price.
Gold's price volatility since January 2000(the standard deviation of the daily price divided by the average) is 45%, almost triple that of the US dollar-euro exchange rate. In a functioning world financial system,in which investors trust governments to control extreme instability, even an indifferently managed reserve currency with a broad capital market behind it is better than gold.
Strictly speaking, gold isn't an investment but an insurance policy against a breakdown of the functioning of the world financial system. In particular, it represents insurance against the breakdown of the political understandings that make possible a world financial system. That is why gold reached its all-time peak (in inflation-adjusted) terms at the end of 1979, when the Soviet Union invaded Afghanistan.
Divided by the US Consumer Price Index (CPI), the price of gold trades at half its 1979 peak, when the world had cause to believe that America would lose the Cold War. American diplomats still were hostage to the Iranian Revolutionary Guards Corps in Tehran; a rescue operation had failed ignominiously; the overall state of America's military was weaker than at any time since World War II; and the European consensus held that the North Atlantic Treaty Organization would break up. Russia's move into Afghanistan seemed like the penultimate blow to American power. If America ceased to be the leader of the free world, the dollar also would cease to be the world's reserve currency. The cost of options on America's funeral - for that is what the gold price was - went through the ceiling.
(Excerpt) Read more at atimes.com ...
no gold bug, me, but this doesn't jive.
The rate of return on American assets will continue to grind lower under this scenario."
Low to no corporate profits, low to loss on home sales, lower home/commercial property valuations to tax.....so..ah...where are our local tax sucking authorities going to get their heroin tax fix from? I mean, NY city is a pooch with a sore butt.
OK folks, BOHICA!
Uh.....8 years ago I started buying gold at $400/oz.....I’m pretty happy with the results.
Obama’s out of control spending will guarantee inflation and gold will continue to rise.
Even a rather wobbly reserve currency is a better asset than gold
no gold bug, me, but this doesn’t jive.
I agree , this sounds just like when an analyst puts out a “hold” signal while their people sell like crazy.
Real property carried at low interest rates can be even a better hedge, and some of each better still. Gold can zig when other things zag and be worth a modest position for that reason, or as catastrophe insurance. But as a long term store of value it isn't as good as currency lent at interest.
the entire premise is a presumption about the dollar or, indeed, any fiat currency, one that is dubious.
Old US silver coins are better in a monetary crisis/collapse
It is hard to spend 1 ounce gold coins and get change in the transaction
With silver dimes and quarters you can get food and some gasoline
Plus spending gold makes you a home invasion target
I'm betting on the latter.
Buy one of these with a couple of your coins:
Wait til Israel hits Iran’s nukes...then you’ll wish you owned golf...even if just a gold ETF
You meant to say that "With the interest collected included, loans to insured banks or loans to the US treasury held their value in real terms if you don't count income tax paid but was less than the returns on physical gold leased/loaned out to financial markets... Sure the return on gold stuffed in the mattress is higher than bills stuffed in a mattress.
“But as a long term store of value it isn’t as good as currency lent at interest.”
If Obama wasn’t president, I would agree, but during the next four years, I am guessing that gold will blow the dollar into the weeds, and depending on how much damage Obama does, it might continue to do so very long into the future.
There is no inflation. It's a deflation. All the inflationary brainstorms rampant, were the bubble. And it is busted.
Are you telling me you know of a bond that I can more than double my money in 7 years??? I'd love some specifics on that!
Bonds also return more than their coupon when interest rates fall. Each 1% reduction in long rates raises the price of bond with 10 years left to run by about 7%. Corporate bonds have returned 35% since last November from both operating in tandem.
Any time you see a sound corporate name at double digit yields, it's a buy. But last fall, people where buying T-bills at zero and snearing at bank bonds at 12-15%.
$10000 invested at the start of 2000 price bought 871 shares. The dividend reinvestment has compounded that to 1698.6 shares, worth $21538 as of yesterday's close.
Thank you for the info.....certainly sounds interesing.... somthing I will be reviewing with my guy tomorrow morning.
I have to wonder why none of my guys (JP or MS)have never told me about this stuff?
Many advisors only think of bonds in terms of treasuries, and as a haven against risk, or a deflationary bet. That is a short term perspective. Treasuries are too expensive right now, they offer no real reward. But corporates have an excellent Sharp ratio long term, and frequently have great entry points in down markets.
That annual standard deviation on that fund's ride over that period was 3.4%, for example.
I'll take a smooth return well above cash over a bouncing ping pong ball half the time above it and half below it, even if the second mathematically averages out to a higher average return. One, you can't believe the average because it is all luck of the end points; it looks worse at the times you should be buying and good when you should be steering clear etc. Two, if you want the reward for such risks, just lever up a little.
In the medium term I see sluggish growth but no serious inflation, and that is perfect for senior private securities. I hear a lot of people hyperventilating about inflation because the money supply is bigger than 2 years ago. Um sure, but asset prices are down ten times as much. (Also the Fed's sheet peaked in April, if anyone is paying attention...)
You can hedge higher rate risk if you are worried about that in the futures. I personally think calling for short rates to eventually get up off the zero floor is the easiest single prediction out there; that say "short the Eurodollar". With that on anyway, I am perfectly comfortable being long intermediate corporate bonds. At some point I may add a short of the treasury 10 year too; right now I think that is still early.
In the long run, US corporations will pay as contracted and credit spreads will revert to normal. When, I neither know nor care...