Gold crash

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Marius
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Post by Marius »

Gold has crashed hard recently and is dropping like a very expensive brick.
I remember Jacob being interested in the Dow/gold ratio and linking to this chart: http://home.earthlink.net/~intelligentb ... dow-au.htm
The medium term chart looks kind of reassuring, but it wasn't updated since last week. It would be nice to have a live one with the same lines drawn on it...
Today I saw this other one, where the recent movement does look rather annoying for those who were waiting for a low ratio to switch some of their gold into stocks:

http://www.chartoftheday.com/20130417.htm

But when you draw a line connecting the peaks in the downward slope, it hasn't been breached quite yet by the recent movement.
I realize that nobody know the future, but maybe some here have an opinion on whether this is the end of the gold bull or not. And whether it makes sense to wait for a better opportunity to switch gold into stocks. Or just reduce your position if you own gold. These QE inflated stocks don't seem a screaming buy to me...
A friend who owns quite a bit of gold is preparing to bail when there's a rebound, because he doesn't want to bet on gold continuing to rise after this very brutal correction. I wonder whether he's just a "weak hand" about to jump ship and how people with more coherent plans look at this situation.


Chad
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Post by Chad »

This guy nails it with his "Rules for Gold":
http://www.ritholtz.com/blog/2013/04/th ... ldbuggery/
It's a trade, not an investment. It's one of the reasons I'm leary of the Permanent Portfolio.
My favorite of his rules for gold:

"Bonus rule: Never admit Gold might be falling because it trades on human emotions and psychology and has no intrinsic value whatsoever."


RealPerson
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Post by RealPerson »

I can't predict the future either, but corrections like the gold one are usually the beginning of a continuing slide. I am not sure if I would wait for an improvement to sell, and I definitely would not be a buyer. Full disclosure: I was too late to jump on gold during its run-up, and decided I was too risky to buy in the later stages of the gold rush. Now I am so glad I chose to pass on it. As with anything, knowing when to buy is just as important as knowing when to sell. That is the problem with any buy and hold strategy: it is on autopilot but you miss the profits as they develop and then evaporate. Remember that the size of your profit and loss is only determined by the buy and sell points, not by anything that happens in between.


Marius
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Post by Marius »

Thanks Chad, that's a nice link.
Realperson: indeed. And if you want to break even, that time can sometimes be very long.


leeholsen
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Post by leeholsen »

a little perspective, marc faber(dr. doom according to financial people) noted that since 2007, the s+p has gained 1% and gold has gained over 100% and s+p gained 2% from 2000 while gold has gained over 400%.
since ere is usually a long term goal, i thought that fit well here.
note, i'm not a financial expert in gold; so i'm not saying buy; but i would buy gold over anything in the stock maerket over the next 3 months; they may both go gdown; but i bet gold goes down by less.


Chad
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Post by Chad »

Another good article:
http://www.thereformedbroker.com/2013/0 ... old-rumor/
If this is true it is not a great sign for gold, as Soros is rather good at this type of trade based on historical results.
@leeholsen

Historically, gold has big moves like the last decade and then goes fallow for a long time. This may or may not be the start of that fallow time. I have no idea.


thebbqguy
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Post by thebbqguy »

I think the gold ETF's helped spur the run up in gold and compounded the sell off.
There is no doubt that gold is a risky investment, but I've read a few magazine articles in the distant past suggesting that some of the best ways to invest in gold and/or silver is with "deep out of the money" options. I am not an options investor, so I don't know all the proper terminology but here's a definition from Investopedia.com:
"A call option with a strike price that is higher than the market price of the underlying asset, or a put option with a strike price that is lower than the market price of the underlying asset. An out of the money option has no intrinsic value, but only possesses extrinsic or time value."
This strategy is also high risk IMHO if you "put all your eggs in one basket". It's similar to buying a lottery ticket. The odds of the options becoming profitable are pretty steep, but I do occasionally play the lottery for fun. Maybe this "deep out of the options strategy" would be fun for some with more "fun money" than I have.
I feel sorry for a lot of the "preppers" who have invested heavily in gold and silver during the past several years. Hopefully they were able to sell on the way down and reduce their potential losses.


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jennypenny
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Post by jennypenny »

@BBQGuy--Preppers wouldn't sell their gold. That would be un-prepping ;-)


thebbqguy
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Post by thebbqguy »

If they didn't sell their gold then that's the definition of "un-prepped".


Seneca
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Post by Seneca »

Preppers hold physical gold/silver as a hedge to SHTF, not so much as a means to investment profit.


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C40
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Post by C40 »

They certainly don't buy the gold intending to sell it as soon as the price starts going down.


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jennypenny
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Post by jennypenny »

I'm only busting on you, but most preppers don't buy gold or silver for a monetary investment. They buy it for the same reason they buy food for long-term storage. They wouldn't sell the food when the price was falling either.
Gold only looks like it's plunging because stocks are still up. When they drop, gold's price won't look so out-of-line.


thebbqguy
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Post by thebbqguy »

I am not criticizing the prepper movement. I actually have my own low key preps. I see the need for it. But if it were me and I saw the opportunity to "sell high" and put some money away for my family I would undoubtedly do it. To not do it when you know full well the price of gold and silver is dropping is irresponsible IMO.
Warren Buffet says it best when he explains for the up-teenth time that his secret is "buying low" and "selling high".
I have never seen physical gold as necessary. When SHTF I think it's more important to have food, water, and skills to barter. Who wants gold when you don't have any food and water? Who wants gold when you don't have a dry place to sleep?


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C40
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Post by C40 »

Again... They don't own gold as an investment. The peppers whose gold is really for prepping might actually prefer that the price comes down now - at least the ones who want to buy more - now they can get it for fewer dollars.
I'm sure there are some who bought gold at much less that ended up selling near the top because they decided at that point to change the purpose of their gold to investing... But for many/most peppers that is not the point at all - the gold is for something else entirely.
Would people also be irresponsible if they hadn't all bought gold (or whatever investment) when the price had started going up? Also, why do you assume that the preppers with gold would have no food or shelter? I think people who are serious enough about prepping to have a stash of gold are pretty certainly also working on food/shelter/etc


RealPerson
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Post by RealPerson »

I am with BBQ on this. Solidifying a profit is how money is made with investments. If a catastrophic event were to occur, access to water, food and shelter, plus skills that can be used for bartering will be much more important than gold. Frankly, in situations of pure survival, gold may be completely irrelevant since it provides nothing for survival in and by itself. Currency of any kind, including gold, would no longer have any meaning. Better invest in learning how to trap, kill and butcher animals than buying bullion or gold coins.


Seneca
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Post by Seneca »

Physical gold has been a ticket to freedom since before biblical times. Munger even made an ill-advised joke about gold being for Jews in the 30's=
http://www.zerohedge.com/news/charlie-m ... nts?page=1
I used to work with an asian lady who despite making about $10/hr and dressing terribly, wore over $20k worth of subdued jewelry. She explained the ability to move through customs country-country with it was the hard won reason.
Americans have had it so good for so long (society and monetary wise) we don't remember things like this.
Preppers definitely have history on their side for this one.


m741
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Post by m741 »

I think that gold makes no sense for prepping. Better to prep with guns, seeds, tools, etc. I guess I can see it being useful if you think your country will go to hell while the rest of the world carries on. If that happens to the US, I have bigger problems than no gold...
Gold as a major investment is fundamentally bearish, and I don't see the appeal. It's investing in an asset that has no fundamental value and which is not doing any work.
That said, I do like gold as a bit of a hedge against downside and inflation. As such, I believe this is a good opportunity and I've started buying. I will continue to buy $500-$1000 per week for the next few weeks, unless it suddenly recovers to its previous levels.
Personally, I hope gold continues to drop, even though I have some money in it now.


tylerrr
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Post by tylerrr »

I don't know why people in the PP are freaking out along with others...
GLD is cyclical like other vehicles such as stocks. It may not be as volatile as some stocks, but it serves as a hedge against them and inflation(even though right now stocks and GLD are down together, that won't continue).
Personally, I'm buying GLD every couple of weeks and I hope it keeps crashing.
I feel it will start rising again as the stock market crashes within the next 1-2 years.
This phony, stimulus induced, stock market run up WILL POP and crash....and when it does, GLD will come roaring back...
Why not take advantage of this?
This proves that many markets move mostly based on emotion and it has nothing whatsoever to do with economic reality IMO.
I can't believe how high the stock market is right now. I feel it is almost completely phony and created by the corrupt Fed. That cannot last and it will pop.


BeyondtheWrap
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Post by BeyondtheWrap »

Eh. I'm not impressed. Let me know when gold gets back to 2008 levels.


Marius
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Post by Marius »

I'm a bit less worried than when I made this post. Gold has had a very painful correction (and may continue correcting), but other commodities are hurting too.
European stocks have started correcting and US stocks are a bit above 2008 highs and need a breather too. And I read things about a new bout of recession.

This could be some kind of 2008 re-run. In 2008 gold was hit hard before stocks went down a lot... As circumstances have been changed, things or course won't be the same, but it gives me hope (but yeah, you can't buy anything with hope). If this is mostly just a new painful part of the ongoing crisis, and real rates remain negative, after a while people should be very interested in gold again.
I don't know what my friend is going to do, but for the time being I'm sitting on my gold, waiting and reading.

But it's clear that I need to work on diversifying, so far I was mostly cash + some gold, waiting for stocks to become cheap.


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