USA, Ireland, UK, Spain and Japan Property Bubbles versus Australia

[Bargain Hunter]

I agree GLD is manipulated. I imagine it's pretty hard to manipulate physical gold once you take delivery, I suppose it could be stolen which won't affect the market price.

My point is that gold itself can't be manipulated, like land they aren't making any more of it.

They aren't making more of it... did all the gold mines close overnight?

Gold can be manipulated. The purity can be tampered with, supply can be choked, gold rich nations who choose not to trade would suddenly be full of terrorists justifying invasion by the US and NATO.

Gold prices fluctuate the same as any other commodity.

Currencies are tracked against each other, economies do not experience crashes simply because their currencies aren't linked to gold. If this were the case then the great depression would never have happened.

 

[.toe]

They aren't making more of it... did all the gold mines close overnight?

The amount of gold dug out the ground in a year is a pittance, and there's a price to pay for it. You cant just add a few digits on a computer screen like the treasury does with money. Also under a gold standard, government usually declare they own the gold.

Gold can be manipulated. The purity can be tampered with, supply can be choked.

It's not about what the average person does with it, it's about whether governments can manipulate it, or allow it to be manipulated. Money cannot be tampered with when the gold backing it is held by treasury

gold rich nations who choose not to trade would suddenly be full of terrorists justifying invasion by the US and NATO.

China hold the most gold & they are gearing up for this, you going to invade them?

Gold prices fluctuate the same as any other commodity.

In fiat dollars yes, but if fiat dollars fail governments revert to more stable money. Historically that's been other currencies first, then if they fail, gold. I'm not saying that'll happen now, but the threat of it justifies the gold price.

Currencies are tracked against each other, economies do not experience crashes simply because their currencies aren't linked to gold.

I'm not saying they do, there are many ways a business can fail, credit problems are just one. Right now governments have a credit problem, the main form of credit in question is the USD, because as it is, one dollar is not backed by anything of agreed value, it is backed by the governments promise to pay. They have devalued that promise.

If this were the case then the great depression would never have happened.

I'm not saying gold is the answer to the problems of all history. Please give me credit for being a little more complex than that. I'm not a champion of gold. If the USD were a fiat country in the early 1900's the great depression might not have been so great. I'm just saying that we got into the current mess because Nixon went off the gold standard for political reasons. Gold is not the answer to everything.

Panadol is handy, when I have a headache I take panadol, but I don't start the car with it.

 

[Bargain Hunter]

The US is in decline, the European Union is in turmoil and the sleeping giant awakes and declares they want gold to be the new standard.

If Australia was extracting 340.9 tonnes* of the stuff each year (must be the pittance referred to above) I'm sure we would be keen to tie everyone's economy to gold also.

Clearly China wants gold recognised as the standard so they can manipulate the markets and the current economic turmoil can only assist them with this goal.

* http://seekingalpha.com/instablog/894262-jaime-macrae/182011-china-wants-gold

 

[Indifference]

The US is in decline, the European Union is in turmoil and the sleeping giant awakes and declares they want gold to be the new standard.

If Australia was extracting 340.9 tonnes* of the stuff each year (must be the pittance referred to above) I'm sure we would be keen to tie everyone's economy to gold also.

Clearly China wants gold recognised as the standard so they can manipulate the markets and the current economic turmoil can only assist them with this goal.

* http://seekingalpha.com/instablog/894262-jaime-macrae/182011-china-wants-gold

Exactly.... this is why some of us think that gold has a bright future, current fiat currencies have a limited shelf life and the average Joe is missing the boat yet again. It is not only the fact you mention above, but also the reality that the current system (based on the exponential function) is unsustainable in the long-term. Every exponential function becomes asymptotic at some point......

There is profitability in any market. You just need to have the conviction to act upon what the fundamentals are telling you and drown out all the noise.

 

[Deltaberry]

Global mine supply of gold is around 2,500t in 2011. And global demand was around 3,600t. I'd hardly call that pittance. The remaining 1,100t was made up primarily by old scrap supply.

Manipulation of gold (which I suppose is what we call bar hoarding) is but a small proportion of that 3,600t of demand, accounting for perhaps 20%. The vast majority of demand comes from jewellery which makes up around 50% of that demand. The remainder is made up from demand for industrial usage (eg dentistry, mining) and ETFs.

While China is the world's biggest gold miner at 13% of market share, western countries are actually not far behind with Australia, South African and USA each making up ~9% of global mine supply. So if crunch time came, I would've thought these 3 countries would have a vast abundance of gold relative to China.

Central banks have only as of reent times been net buyers of gold. In fact as recent as 2009, they were still net sellers. Developed economics (ie Western Civlisaiton) still hold far more gold as a % of reserves relative to developing economies, with the numbers at 40% vs 4%.

 

[.toe]

The US is in decline, the European Union is in turmoil and the sleeping giant awakes and declares they want gold to be the new standard.

If Australia was extracting 340.9 tonnes* of the stuff each year (must be the pittance referred to above) I'm sure we would be keen to tie everyone's economy to gold also.

Clearly China wants gold recognised as the standard so they can manipulate the markets and the current economic turmoil can only assist them with this goal.

* http://seekingalpha.com/instablog/894262-jaime-macrae/182011-china-wants-gold

From Gold Reserve Wikipedia Page

It has been estimated that all the gold mined by the end of 2009 totaled 165,000 tonnes

340.9/165000 = 0.002066
= pittance

This is why gold is stable, as I said they aint making any (much) more of it.

Interestingly the U.S. still has one of the largest holdings of gold per capita in the world despite being off the gold standard for 4 decades. What's interesting about that? Well the gold is controlled by the federal reserve, which is a cartel of big banks. They're the ones largely responsible for bankrupting the country by creating all that easy money. Don't you think they would've sold off the gold if they thought a fiat currency was fine & dandy?

 

[Bargain Hunter]

Holy cr@p Batman, 165,000 tonnes per year.

 

[.toe]

Holy cr@p Batman, 165,000 tonnes per year.

Ah, sorry for the confusion, wikipedia worded that. No I think thats 165,000 ever, up 'til 2009. But I think the point is still valid that it now costs a lot to mine gold (though more & more profitable), & what's mined is not much compared to the "world vault". It's so much easier to create more fiat currency.

 

[Intrinsic_Value]

From

This is why gold is stable, as I said they aint making any (much) more of it.

yes the total quantity of physical gold is relatively stable. I read somewhere that the long term supply increase is around 2% a year.

But what is the 'stable' current fiat currency price of gold????
This is a very different line of thought.

ie what is the true underlying intrinsic value of gold expressed in current fiat currency terms??? I have absolutely no idea what it is. But those who focus on gold should. Why? because just like any other tradeable asset, an asset can temporarily move both above and below intrinsic value. People taking their que of intrinsic value from pricing will always be destined to incur dissapointment, whether the underlying asset is gold or any other asset.

 

[.toe]

yes the total quantity of physical gold is relatively stable. I read somewhere that the long term supply increase is around 2% a year.

But what is the 'stable' current fiat currency price of gold????
This is a very different line of thought.

ie what is the true underlying intrinsic value of gold expressed in current fiat currency terms??? I have absolutely no idea what it is. But those who focus on gold should. Why? because just like any other tradeable asset, an asset can temporarily move both above and below intrinsic value. People taking their que of intrinsic value from pricing will always be destined to incur dissapointment, whether the underlying asset is gold or any other asset.

Sure gold has uncertain intrinsic value right now. That's only because nobody knows whether the U.S. dollar will fail. While we have fiat currencies the price of gold is a bet along a continuum. At the bottom of the continuum some believe that people in economic growth countries will buy more gold wedding rings, and a few small countries will hoard gold. At the top of the continuum are those that believe the U.S. dollar will fail taking others with it.

If the U.S. dollar fails then suddenly all the gold is valued at what all the money used to be valued at. That's it's intrinsic value. Gold is lined up on a 'failure horizon', & we are not to sure how far off failure we are. So the price is uncertain and as such it can be manipulated. But we know exactly what golds value is at failure.

 

[Aaron Sice]

the US dollar wont be removed, but it may devalue as oil rich countries accept a wider range of currencies for oil. russia is accepting yuan, euro, sgd for oil -so is iran, china, venezuela and soon japan. they're not stupid enough to say "no more usd, please" like saddam did, rather they'll take any currency, which will remove the monopoly of the usd as the petrodollar. when it is destabilised, the IMFs SDRs will have to take over as the reserve currency.

those SDRs will need more than just a "promise to repay" as per the current system to avoid that fear based collapse of inter-bank/country/region lending, so the SDRs will more than likely be commodity backed, be it gold, silver, oil....

so even the usd will have to exchange relative value in SDRs, then trade down on the other side into the local currency they are buying in. whatever commodity those SDRs are backed to, expect an exorbitant price tied to it.

while gold, silver and oil are well primed to move into a mania bubble phase (and i expect the bust on the other side to be spectacular), buying gold and land now could still reap huge benefits.

we all know how it goes. buy when everyone is fearful, sell when taxi drivers are buying and ACA have specials on how to buy and why the experts predict 20,000oz gold and 300/bbl oil.

dont sell at the very top, just keep selling all the way up, then dump the remainder ofwhat you have left in the bull trap on the other side of the peak-heading-into-bust.

short GLD and SVR in bull trap.

buy all your gold back, and then some, when everyone is out of gold and buying land after the bust, because you can bet your bum shortly after this gold will be nationalised like bad mortgages because of allthe too big to fail speculating institutions and then there will be a global gold shortage forthe private market, pushing Au to insane prices almost overnight.

 

[Aaron Sice]

Global mine supply of gold is around 2,500t in 2011. And global demand was around 3,600t. I'd hardly call that pittance. The remaining 1,100t was made up primarily by old scrap supply.

Manipulation of gold (which I suppose is what we call bar hoarding) is but a small proportion of that 3,600t of demand, accounting for perhaps 20%. The vast majority of demand comes from jewellery which makes up around 50% of that demand. The remainder is made up from demand for industrial usage (eg dentistry, mining) and ETFs.

While China is the world's biggest gold miner at 13% of market share, western countries are actually not far behind with Australia, South African and USA each making up ~9% of global mine supply. So if crunch time came, I would've thought these 3 countries would have a vast abundance of gold relative to China.

Central banks have only as of reent times been net buyers of gold. In fact as recent as 2009, they were still net sellers. Developed economics (ie Western Civlisaiton) still hold far more gold as a % of reserves relative to developing economies, with the numbers at 40% vs 4%.

.....and the US Fed still value their gold at $37/oz or something silly like that.

 

[Intrinsic_Value]

interesting to look at ones personal investment bias.

Above we see arguments in favour of holding gold.

My own investment bias is income producing assets. My focus is on two of the big 'dogs' of US banking: Citigroup and Bank of America.

After a hold off over the last 6 months (i bought a small quantity of Citi at US$40 earlier this year and have held), i am now resuming buying + regaining exposure to BAC.

To compensate for extra volatility risk i am reducing leverage.
My risk: the capital invested in these stocks, i dont think it will be a wipe out, but am expecting volatility to be massive.

Upside potential over 10 years: 400%+ (before gearing)
Downside potential: unless these companies blow up (they are complex financials, i think they will still be around in 10 years, ie on a 10 year viewpoint, i think capital is safe). However volatility as expressed by share price will be huge.

Current position in the portfolio:
Citigroup 2% (have been topping up recently)
Bank of America 1% (recent purchase).
Softly softly approach going to be taken (ie no need to acquire immediate massive positions, this is a patience game, worst case scenario (from my point), shares skyrocket too early and i cant build a large enough position, but better to slowly acquire over time, this way risk is less (as new information can be assessed without pressure on the position)

 

[.toe]

interesting to look at ones personal investment bias.

Above we see arguments in favour of holding gold.

I don't kmow about others but I'm not holding gold right now or suggeting it as an investment. I'm just trying to understand it.

 

[trendsta]

I dont really know much about gold, so pardon my ignorance.. But i do know a bit about economics and the current financial system.

After reading this thread I was thinking about how a gold backed system may work, and the advantages / dis-advantages of such a system. I think the advantages are clear, e.g. relative stability, removal of "inflation", removal of manipulation of system through control of fiat currency etc... However on the downside I think gold system would lead to "deflation"... unless a currency based by gold is adjusted on a on-going basis to reflect change in economic dynamics.

Take a very simple example lets say there is 1000 tonnes of gold in the world, and lets say there are 1000 people, thats 1T per person . Lets assume supply of gold is fairly constant as amount mined per year is fairly small compared to amount existing. Next year lets say everything else in the system stays same, however population grows at 2%.. so we have 1020 people, and still 1000T gold, so less gold per person.

Now lets also assume over the course of year productivity increases, e.g. better farming, manufacturing, building etc techniques.. In first year there were 1000 goods produced , and in second year 1020 .. again supply of goods increases relative to gold hence price of goods drops in gold terms. What this would lead to is "hoarding" and more "saving". Hence a negative credit loop resulting in deflation. Why buy anything if its supply will increase, as it would be better to hold onto the gold.

In terms of investing the aim of the game will not be to beat inflation (or risk free rate) as per current system. It will be to only invest / produce something if its value increases relative to gold either through increased demand above demand for gold, or reduced supply... In such a case oil would be the star... Otherwise why invest / produce anything.. keep the gold and pass it on to the generations..

In essence gold is a constant, economic output of goods / services are dynamic. Technology and human nature "normally" lead to advancement and efficiency e.g. production of wheat now vs 50 years ago, production of steel now vs 50 years ago, living age now vs 50 years ago etc. Thus "normally" the supply of goods and services increases or becomes more efficient. Against a constant (e.g. gold) this would be deflationary... Added to the world population is still growing and projected to grow for a while..

happy to be corrected and learn..

 

[.toe]

happy to be corrected and learn..

I think you are right about deflation at least, I think that is what happened with gold. Perhaps an answer might be to adjust the dollar value of gold (allowing money to be 'printed') depending on productivity.

 

[Aaron Sice]

you are spot on about deflation. this is why ive been saying that property is due for a huge crash 2020-2025. anyone buying now will probably be fine, because inflation between then and now will be massive. i expect the gold backed SDRs to come into effect around then.

its those buying after 2017-18 ish that will be wiped out, or be a slave to their debt forever.

i think the only way to make money out ofthis is to follow it, dont try and beat the system. gold (and silver) is going to go parabolic, along with land and pretty much any commodity.

just like mortgages (and thereby the underlying land) were nationalised, so will resources be on the other side of this crash.

private weath post 2030 will be a rare thing indeed.

 

[hobo-jo]

gold (and silver) is going to go parabolic, along with land and pretty much any commodity.

We've pretty much already seen land go parabolic. I disagree that land prices will benefit from any significant inflation scare/rush to safe haven assets. At best I think we will see land rise, but at a level lower than inflation (so falling in real terms).

 

[Aaron Sice]

thats one way to look at it, i guess. land generally does well in inflationary times, im only rhyming with history here.

i see the current situations in housing as a bear trap.

i mean, many, many people are saying gold is about to go parabolic, yet a look at kitco suggests it already has.

 

[hobo-jo]

thats one way to look at it, i guess. land generally does well in inflationary times, im only rhyming with history here.

i see the current situations in housing as a bear trap.

i mean, many, many people are saying gold is about to go parabolic, yet a look at kitco suggests it already has.

Can you provide an example of land doing well in inflationary times? As I recall during the 70s it rose less than inflation.

You need to look at parabolic moves relative to its own history, gold is up 7x this bull market, last one ended up over 30x.

Land hasnt really gone parabolic, but has seen the largest speculative move higher in documented history relative to GDP/wages/rents/etc. I doubt we'll see land rise higher than inflation for 5 years, maybe more.