i still don't see how one can argue against land for gold, or gold against land.
both are commodities.
both are commodities.
Gold & Silver - Biggest Commodity Bubbles Of Our Time
- Thread starter meconium
- Start date
in the short term yes, over longer periods no.
As gold prices increase there are increased incentives to increase marginal supply of new gold. As the price goes up, more and more marginal participants can participate.
Underlying land is fixed. (this doesnt mean that land prices cant crash), only that in the long term there aint anymore land to be created, what you see is what you get.
(and now i'm going to get posts such as land reclemation etc)
in the short term yes, over longer periods no.
As gold prices increase there are increased incentives to increase marginal supply of new gold. As the price goes up, more and more marginal participants can participate.
Underlying land is fixed. (this doesnt mean that land prices cant crash), only that in the long term there aint anymore land to be created, what you see is what you get.
(and now i'm going to get posts such as land reclemation etc)
I agree with where you are heading. This is the industry cycle, prices rise, investment in capacity occurs etc prices fall again.
Gold is not as much like Iron ore or coal because it is held as stock / wealth.
You see with iron ore it is all about flow. their is very little stock of iron ore / coal even oil so when prices rise capacity has to build and there is eventually an overcapacity prices fall and capacity takes a long time to reign in again till you get the next cycle.
Gold is as Aaron says a lot like land but I would not say it is like other commodities at all. There is a very slow moving flow in both new land and gold but a very large stock.
Before you say I am referring to land reclamation, I am not. the price of urban land has absolutely stuff all to do with land in general in a country like Australia. It is all about zoning, infrastructure, availability, amenity etc. The land is limitless. Land with amenity is not but it like gold can be made but indeed the amount made is very low compared to stock. Hence gold and land do not perform like ore, oil or coal.
The issue with both gold and land is they are prone to bubbles due to flow being only a small component of stock in any year no matter how high prices of either go. Their valuation is often based on what someone is prepared to pay rather than reflected back to costs so yes stock builds slowly over a long time as we saw in the USA and we are likely to get in gold too.
In Iron ore it will be like switching off the light when suddenly capacity hits demand. It will be sudden there will be no warning. Both Gold and Real estate gives you lots of warning. Its whether you are prepared to take notice of the warning that is the issue. Iron ore, oil these are risky commodities to dabble in unlike land and gold where the price moves slowly in comparison.
Yes but to what extent is it held as stock/wealth because of the current increase in price. This does not mean that gold is worth current prices. Only that gold can be exchanged for current prices, and it the sh**t hits the fan, that someone holding gold will be able to get 'something' in return. (ie gold has a store of value, but here is the key question, what is the intrinsic value of that store in value) Is it current price? higher? lower?, what is the underlying certainty factor?????
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Yes your comments are all true, so what is the future timing of future significant increases in supply. Also what is future demand (dont correlate with the past, we dont know the future). From this extrapolate the cash returns from today to the future when supply increased and prices drop (long term pricing of resources is just above the marginal cost of production). Do a NPV of those cash returns and compare it to current resource share prices (based on this limited duration).
I dont have the answers to the above, its all in my 'too hard basket'. I prefer to clip the ticket on items which i have more certainty on (and which is why Sunfish is always cracking the sh***t with me. My investments are like an insurance company, i dont like the premium paid upfront, i'm out of there. I will find another sector where people will pay me an adequate premium (which effectively ensures the majority of my risk).
Gold is as Aaron says a lot like land but I would not say it is like other commodities at all. There is a very slow moving flow in both new land and gold but a very large stock.
Before you say I am referring to land reclamation, I am not. the price of urban land has absolutely stuff all to do with land in general in a country like Australia. It is all about zoning, infrastructure, availability, amenity etc. The land is limitless. Land with amenity is not but it like gold can be made but indeed the amount made is very low compared to stock. Hence gold and land do not perform like ore, oil or coal.
The issue with both gold and land is they are prone to bubbles due to flow being only a small component of stock in any year no matter how high prices of either go. Their valuation is often based on what someone is prepared to pay rather than reflected back to costs so yes stock builds slowly over a long time as we saw in the USA and we are likely to get in gold too.
In Iron ore it will be like switching off the light when suddenly capacity hits demand. It will be sudden there will be no warning. Both Gold and Real estate gives you lots of warning. Its whether you are prepared to take notice of the warning that is the issue. Iron ore, oil these are risky commodities to dabble in unlike land and gold where the price moves slowly in comparison.[/QUOTE]
to my first post above, consider the cost of finance, ie if one wants to leverage, how much does it 'cost'. And i'm not talking long term property here, i'm talking speculation in resources.
If my cost is effectively zero, then so long as the overall trend is upwards, i am not paying anything to hold those positions, and my greatest risk is prices moving against me, ie cost of finance has no bearing.
(if i want to take this to the next degree i can use cost of funding with currency speculation)
There are big players out there, dont think like a retail investor/speculator.
If my cost is effectively zero, then so long as the overall trend is upwards, i am not paying anything to hold those positions, and my greatest risk is prices moving against me, ie cost of finance has no bearing.
(if i want to take this to the next degree i can use cost of funding with currency speculation)
There are big players out there, dont think like a retail investor/speculator.
I agree with what you say here completely. Sorry I have a habit of trying to build a case for things and not get to the point till later in the post. Both gold and land are prone to bubbles because the large existing stock will often get valued at a level which has no bearings on underlying costs. This can go on for a long time because flow even at elevated levels takes a long time to swamp the market.
this is unlike coal, iron ore etc which as soon as caapcity meets demand the price drops precipitously and often investment in the pipeline goes on building capacity till we wiat for marginal miners to go broke etc till the next upswing in teh cycle. These commodities are more volatile but ironically they are easier to predict than gold ad land prices where price is just what people will pay most of the time.
If you do the NPV and base the returns on a long term sustainable price you would not buy any resource stocks at current prices. Price is unsustainably high against costs excep for marginal players (and I certainly would not touch these with a 10' barge pole. While I would expect some investors to get on this bandwagon it upsets me to the core that our government is similarly dissilusioned around iron and setting Australia up or a fall...
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I was hedging against a stupid reply like what about those countries with limited land supply.
But in reply in to the rest of your comment, i politely say you are wrong. The land might be limtless, but the underlying value of a single spot of land at at specific point in australia is not limited.
In melbourne, how much more land is available in the cbd, what about brighten, what about torack, what about south yarra. What about sydney?
Now as land prices increase the efficiency of that land increases. In some cases efficiency means better utilisation of the land (ie subdivide), in other cases it means that only those with the most efficient means of making money will be able to buy a house there (ie the top top suburbs).
i think i agree with you on this. If i understand correctly, gold is much more scarce than say ore, hence its not just a case of future increase in supply. Ore is relatively commen, gold is not, so it becomes an issue of how long does the infrastructure take to increase that supply, not the underlying iron itself.
However land is more scare than gold. Land is 100% finate. Gold is not.
Again i think i understand the jist of this. And yes i would agree that gold and land can be subject to pricing bubbles.
But if one forced me to take a decision based on just two variables with a 50 year view point: land or gold, i would choose land.
Yes i would pretty much agree with this comment. However there are secondary indicators one can use to get a feel for iron ore.
By the way, all these comments have been made from someone who reads the basic traders information but makes one money from investing.
Hence i could be very wrong with regards to some issues
ahhh yes but what exactly has made that land worth what it is? Not the land itself.
Again the land is infinite (well technically its not like gold is technically finite as well) but the infratructure, amenity etc is only what people have built there.
I could show you a photo of a 1million acre patch of land on the west coast of WA where there is currently no development say currently it is a goat farm.
It may still be a goat farm in 20 years or it is possible people could have urbanised it and it may look like Melbourne CBD. It may be a new city called New Goat but again urbanisation is a man made process it has costs and this is what your block in Toorak comes back to.
In a country like Australia the land itself has very little value, it is only the process of urbanisation which in this country is stupidly expensive due to an incompetant government chiefly...
The process of urbanisation is a man made one and putting to one side the likes of Hong Kong etc, we have limitless land just limited opportunities for urbanisation, mostly limited by the government.
So you were getting there when you spoke about capitalisation IMO but I think you did not think to go back to raw untouched land to understand what it is exactly that gives a block of land it's amenity and the costs behind these provisions.
That is an interesting question.
Over 50 years I would agree with you.
Over 1000 years I would not. Gold is the ultimate safety play over very long periods of time. Say you were a carthaginian and with your bag of gold liked the look of a patch of land with sea views and good growing climate a long distance to the east of Carthage.
Then snap back 2000 years later and retrieve your bag of gold or your plot of land on the coast of Libya...
Repeat the process where people lived. Bearing in mind we were far less urbanised even 1000 years ago so many places will still be just a paddock that you might pick.
Sure if you got lucky you pick in London or Paris or even Rome but most times you will dud out. All this has absolutely no practical significance of course.
Nonetheless land use changes dramatically over long periods of time as does its value. it goes up it goes down as does golds. neither very often able to be compared with costs like in normal commodities or consumer goods.
Yes over 1000 years you could be right given that land value is also related to the rise of civilisations (and their subsequent fall).
To compare gold and property is absurd. One is an asset, the other is money.
In good times private individuals don't need gold. It should only be in Central Banks and jewelry. Property is a great investment during these times.
The fact that gold has been on a tear for ten years actually tells you that many people with wealth to protect know that these are not good times. Gold takes on the flavour of an insurance policy - insuring against failure of fiat currency to maintain it's purchasing power and fiat currencies are constantly losing that. The only thing that matters is the rate.
If you think about it - When central banks denominate a new currency, as they need to do when the old ones become worthless, they don't say to themselves that the currency of their little nation doesn't have the standing of the US so they will make their currency only equal to 1c US. No, they will set it so that it has somewhere between 50% and 200% of the USD. When this new currency falls again to 1c, as they usually do, citizens of that nation would have been better off holding gold OR USD. Today though the USD is no longer a safe haven and the wealthy are buying the alternative.
If you think of gold as a commodity you will never understand it. It is the base unit of value against which all currencies are measured and, by extension, all assets. That is why Hobo Jo and I will sometimes measure the performance of property in ounces of gold rather than dollars.
In good times private individuals don't need gold. It should only be in Central Banks and jewelry. Property is a great investment during these times.
The fact that gold has been on a tear for ten years actually tells you that many people with wealth to protect know that these are not good times. Gold takes on the flavour of an insurance policy - insuring against failure of fiat currency to maintain it's purchasing power and fiat currencies are constantly losing that. The only thing that matters is the rate.
If you think about it - When central banks denominate a new currency, as they need to do when the old ones become worthless, they don't say to themselves that the currency of their little nation doesn't have the standing of the US so they will make their currency only equal to 1c US. No, they will set it so that it has somewhere between 50% and 200% of the USD. When this new currency falls again to 1c, as they usually do, citizens of that nation would have been better off holding gold OR USD. Today though the USD is no longer a safe haven and the wealthy are buying the alternative.
If you think of gold as a commodity you will never understand it. It is the base unit of value against which all currencies are measured and, by extension, all assets. That is why Hobo Jo and I will sometimes measure the performance of property in ounces of gold rather than dollars.
But don't you feel its pointless exercise to measure property in ounces of gold. For every block of land you show me is overpriced I can show you same quatity of land elsewhere which is undervalued compared to price of gold. What determines value of a particular block of land is based on either it's earning capacity, general publics affordability, it's desirability to live, it's scarcity value. It rarely pays to compare it with price of gold.
For eg when you buy commercial prop you buy it based on it's earning potential and not on what the price of gold is today. Similarly when you buy residential you consider other factors I mentioned above.
Cheers
Oracle.
This thread is funny...
However I do believe gold and silver will be the biggest bubble seen in history to date.
However its still a little while away, I will feel sorry for the Mum & Dads who get on the bubble in a few years time. I really will.
I strongly believe in gold & silver as investment today but the day I think its overvalued I will be the first one posting here saying its time to move to another asset class. That time i think is a few years away.
However I do believe gold and silver will be the biggest bubble seen in history to date.
However its still a little while away, I will feel sorry for the Mum & Dads who get on the bubble in a few years time. I really will.
I strongly believe in gold & silver as investment today but the day I think its overvalued I will be the first one posting here saying its time to move to another asset class. That time i think is a few years away.
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