Is the recommendation made to own gold or to avoid the USD? I am a Canadian and when I bought gold years back, paid for in USD with CDN, it is worth approximately the same in CDN now as then. The rise in gold price was offset by the decline of the USD. I wonder whether gold is an American, rather than a global story. And why gold rather than a gold mining stock, such as, say, Goldcorp or New Gold?
I want to start by saying that I do not recommend anything. This is just an site that discusses what I am doing. I don’t know how far back you bought your gold, but over the past 5 years, gold in CAD has gone from 500 to nearly 1300. That’s not a bad return. I agree with you that gold may not be that much of a Canadian story, but most other western countries are in serious trouble. I think gold will do well in plenty of currencies going forward (including CAD). You can buy mining stocks or gold. I just prefer gold as it’s more of a pure play and until very recently, most mining stocks were barely earning their cost of capital–much less an adequate return on capital. At 1225 gold, those returns change. I own gold and GDX, which is a basket of gold stocks. However, these are both trading positions for me. There are a few times a year when you can catch a big move without risking too much. I think such a move is coming.
Great commentary on your trip down under 🙂
wrt gold. There is so much above ground potential supply which is stored in the central banks that for current demand purposes it’s essentially infinite. So there is no logical reason for gold to trade at a premium to production costs unless the CB’s choose it to be that way. After all, the treasury could order the Federal reserve to dump all the gold in Fort Knox onto the street and that would dent the price for long enough to put most gold miners out of business. The corollary of that line though is that the CB’s see value in their gold reserves but just don’t own up to it. I guess if you look at gold’s supply as essentially infinite then it must trade as a currency (whose supply is also infnite) and not as a commodity whose supply is limited. Have you seen gold looked at in this fashion? and do you think it relevant?
Thanks looking forward to your next post 🙂
That’s a really fascinating point. I have thought about this quite a bit. I think that over time, gold will become more of a currency. As you say, yearly supply/demand numbers are meaningless. World gold supply increases 2-3% a year. It’s less than world economic growth even. However, as a currency, gold has frequently been valued at a considerable premium to the cost of producing it. In fact, for much of human history, that has been the case. I think gold should trade at production cost + a gross margin so that miners have a 20% return on new production. That probably puts the fair value somewhere around 1100-1400. However, I’m a realist. I think that in times of fear, gold will trade at a massive premium to fair value. It wouldn’t surprise me if it traded at 2-5 times the cost of producing it in a real currency crisis of global proportions. On the subject of the government dumping Fort Knox gold, I don’t think that will happen. There are too many central banks out there that might just swap their paper for gold. Then what?
I enjoyed the “Got Gold” piece. I too have endured ridicule for several years in public for being a gold bug as the price rises.
I thought you would find it interesting that I have a friend in the gold brokerage business here in Tampa and the fill orders for physical product of all types making a small vig on each order. He told me that the price smack-downs have done nothing to physical demand only effected the paper market. Also, they are dealing with dozens of people every day that call to buy product and have not the foggiest idea what to buy but tell the trader to point them in the right direction.
You have to figure that if there are dozens of people doing this every day and wiring money in exchange for physical product that they are talking about it and not much time will pass before human mass psychology kicks in and creates what we know is coming.
Best of luck to you.
Thanks for all the good writing.
Glad you enjoyed my piece. I have been involved in gold since early 2004. However, I feel like something has changed in the past few months. Previously gold was just a few hedge funds and the goldbugs. Now, I feel like gold is going mainstream. I don’t know how to quantify that. I just feel like people who never cared before, are wanting to get in, but they don’t even know what to buy. They keep asking me what to do–which is strange because at 350 gold, they laughed at me. It’s the golf course rule: If one guy at the golf course owns it, he gets laughed at. When a few guys have it, there’s safety in numbers. When 10% are talking about it, everyone else feels like they’re missing out and the herd stampedes. I feel like that’s imminent.
Kuppy, terrific pieces from Oz and NZ… You must believe in the Relic… Do you think Tudor Jones, Soros, Paulson, Fleck have stops under their gold?
I’m glad you enjoy the site. I have no idea who has what stops. However, my experience is that good traders always use stops on part of their position, however, they have a core position that they keep as long as they believe in the investment. You’d have to ask these people individually as to how they’re playing things.
I was curious what you normally spend most of your time reading on a day to day basis? Where do you get your information? What’s valuable and what’s overrated?
That’s a tough question. I really spend most of my time just reading history books. I have a dozen friends that I talk to every day or three. They tend to forward me interesting articles and that fills up a bunch of my time too. Finally, I read fleck, valueinvestorsclub.com, sumzero.com and a dozen other blogs out there. I also read the news and try to figure out how it all impacts things. There are a few really great places to look for investments and I spend some time looking at things that pop up through that scans. I keep my day pretty busy honestly. I wish there were more hours in the day.
what did you think of their appointment of a new cfo and corp dev guy? Fleck had mentioned they still had deficiencies in management. does this make a difference in your mind as to them making the right moves? thanks.
It is a big step in the right direction. They needed a CFO. They now have one. I hope to meet him in the next few months. Mark Zabel (new corp development) worked for me for years and was my top analyst. He’s one of the smartest guys I know. He left my firm to work for Andean. He thinks there’s a whole lot of upside there. I wouldn’t doubt him. After having worked with him for years, I think he’s a VERY good addition to the company.
I see you are shorting VXX – at the time you were recommending shorting. Rubino , of Dollarcollapse, was recommending it as a buy.
I’m a Novice. It looks like you expect VXX to collapse in Value over 1-2 years. While Rubino wants to profit from a shorter term spike in VXX.
Am I getting this – you are both playing the same etf – but, there are two ways to profit from this etf depending on the time horizon you have for the investment.
My outlook is very long term. It’s a flawed product and if i stay with it, it will effectively go to zero eventually. Clearly, Rubino got it right in the short term. I never thought this could go against me this badly this quickly. But that’s the nature of markets. Fortunately, it was a small position and I’ve traded around it to avoid a lot of the pain. There are two sides to every market and sometimes, both guys can be right depending on their timeframe.
I agree that Aus. offers great opportunities for investors. However, don’t you think that the leftish gov. presents political risk for investors, e.g. proposed confiscatory mining tax? I think there is an election coming up there in less than a year. Perhaps, it would make sense to wait until after the election or at least until there is clarity as to which party is likely to win.
You have a point. However, it looks like the current government is getting crushed currently in opinion polls. Australia is still a great place to invest–maybe just mining will be trouble. I think a dozen Aussies told me the same thing. ‘John Howard did a great job, but he’s so damn boring. But I sure do miss him’ I only have 2 investments in Australia currently, along with a small AUD long, but I’m always looking.