Price is what you pay and value is what you get. Do not confuse yourself with either one. If value and price (USD) is not interchangeable then there will not be a pricing and trading of gold. You may 'value' your gold highly but others may 'price' it higher or lower. So gold is not a store of value, but a perception of value based on what the market 'price' it. If the market decides to 'price' it lower, do you still get your 'value'?

Gold has been recently drum up as hedge against 'fiat' money, but even as USD strengthen no longer have any effect on gold, 'fiat' money is theoretically will be devalued constantly. Also the 'inflation' hedge argument, is also not so apparent anymore. If an item is truly a hedge, it should not be correlated to equities at all. The rise and fall of commodities is usually due to supply and demand, but it no longer correlated much with gold.

Gold nowadays is more like a trading instrument, where it performs more or less like the stock market, if stock falls, it falls, if it goes up, gold goes up. The 'hedging' is no longer there as the 'beta' of gold is correlated to the world stock market. Gold is looking more and more like the 'tulip' mania like you so casually mention, as then a 'tulip bulb' is perceived to hold a 'value' equivalent to the price of a house, and many is willing to pay the 'price' for it, until someone realized that a 'tulip bulb' does not feed you, gives you any constant returns or have any economical use. Then guess what happened?

If lets say you decided strongly that 'fiat' money should fails, do you rather own gold or farmland? If you want to eat or feed your family, how much gold are you willing to trade for a sack of rice? The if your gold is only trade able for food, then where is the perceived value? The person with the farmland can constantly produce and since he might not need so much gold (which is a chunk of metal to him), wouldn't he rather get something else in return (like meat?)?

Gold is only useful as part of diversification of your total portfolio, where you are trading to earn from the 'pricing' (mispricing? ) of the gold, otherwise it is just another lump of metal, which does not feed you, gives you any constant returns or have any economical use. Sounds familiar?

This post has been edited by gark: Nov 30 2011, 11:00 AM

Yes gold is used in jewelry, but only less than 50%, the rest is hoarded by 'investors' mostly by ETF's. Jewelry is a discretionary consumption, it is not a must have. If gold suddenly fully mined out overnight, will the gears of economy stop? It is not essential in the economy because it has no economic value, and whatever commercial functions it serve is replaceable by other materials.

On the other hand, other minerals like phosphate, oil, copper will definitely impact the economy if it runs out. BTW we have only about 50 years of reserve for phosphate. If it runs out, fertilizer production will stop, and currently there is no replacement as it is an 'element' as in phosphorus. The world should be much much more afraid of that rather than 'fiat' money & gold scarcity.

If you say the trading of gold is fiat gold, then why is your physical gold 'value' follow the 'price' of fiat (traded) gold? Try selling your gold to it's true 'value' (whatever you perceive it to be) without following the traded price, see anyone want to buy from you or not?

The graph is nothing new, as price of gold exceed the rise in equities, it is natural the price of single equity is worth less than the traded gold. It still brings to the argument that price is what you pay, value is what you get. Still you say you have earn so much and much, isn't that also follow the 'price' of traded (fiat?) gold? Correlation is based on beta, and not a comparison graph. Beta means if no1 goes up, no 2 also goes up and vice versa.

Oh yeah, they do trade tulips for land, food, etc during the tulip mania...

This post has been edited by gark: Nov 30 2011, 02:40 PM

Come come.. i show you pretty pictures... the first is gold vs SP, the second is beta S&P vs GOLD for the past 10 years. The correlation is 0.12.. which is 'highly correlated'.





For the full story of tulip trading for food and land please read the book 'Extraordinary Popular Delusions and the Madness of Crowds', published in 1841 by Charles Mackay or you can just search wiki for tulip mania.

Yep Warren Buffett did sell off all his silver, but is was a derivative contract (fiat metal?) and he did not hold any physicals. Here is what he says on gold...



And you say W. Buffett is smart to sell of his silver at $7 an ounce, now according to traded 'fiat metal' it is about $30 an ounce. Why don't he wants to speculate anymore now as the price is surging? Maybe be cause he did not see 'value' at such 'prices'?

This post has been edited by gark: Nov 30 2011, 03:18 PM

Aiyah.. I am showing you the correlation or beta, not the actual worth, look at the graph carefully. The correlation graph is from 2000 to 2010, which is when gold start to gain popularity. Warren intuition of 'value' in stocks, bonds or metals has been unmatched for more than 40 years, so he sold out metals during the rise of the bubble as he perceives the value is no longer there.

If you think you are better than Warren Buffet, then good luck and please don't forget to come visit LYN forum when you are a billionaire.

This post has been edited by gark: Nov 30 2011, 05:44 PM

10 years correlation chart is short term volatility? Like I say correlation does not mean it has the same value, it measures the correlation between up and down.

W. Buffett does not earn the title as the worlds' best investor for nothing, in fact he does not favor metals very much at all, hence he unloaded all his silver into ETF holdings and made comments on the 'value' of gold. He is a value investor, if he does not see value even as the price is rising fasts he will not touch it. In fact during 1995-2001 when dot.com stocks is going sky high, he said the same thing and did not touch tech stocks even though thousands upon thousands of people got fabulously rich overnight. That time even a magazine declared the end of Warren Buffett's investment style and he is 'behind times' and does not understand the 'new wave'.

Anyway just enjoy the ride while it last, but please diversify properly and not put everything in one basket. Also falling in love with an investment is a no no. In fact I do diversify into gold via Newcrest Mining, but it is just a small percentage

You still don't want to read the correlation chart do you? Read the bottom figure the chart is from September 2000 until Mid 2011. How can this be a 2 year chart? Once again correlation chart is not impacted by prices

This post has been edited by gark: Dec 1 2011, 10:03 AM

Well it is no longer a discussion, if you refuse to see the point and cycling the same thing over and over again. Anyway good luck with your gold investment.