Wealth managers say gold bubble forming

as a side note, I come to realise that everything that has come out from the ground and earth has gone thru the roof. I recently heard a story that the koreans have run short of kimchi and they are importing cabbage from china which has gone up by 10 fold in price imagine that.


Wealth Managers want to wean investors off gold

I would agree on that view as well.

I've never viewed Gold as an investment per se, in that it does not generate cash flows and the only way you can profit from it is through capital gains (i.e. buying and selling to someone who is willing to pay an even higher price).

Can the price of gold surpass inflation over the long-term. I am not sure if studies have been done on this, but if you remove the lack of cash flows factor, I think gold would lose much of its lustre (pun intended!).

For all the Buffett-ites, Warren Buffett has also recently come out and said something on Gold:

"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

Got this off Sham Gad's blog (link) which in turn linked to an interview posted here.

But one thing's for sure. The party could go on for some time yet.

I guess in essence, the same signs are appearing for gold as with any asset class which is rising in price.

1) More people think it is a viable and long-term asset class (think - the common [lay]man on the street).

2) More and more "gold funds" being launched.

3) More news on how gold will continue smashing records of US$2,000 per ounce or even US$3,000 per ounce. The same happened when the Dow smashed through 10,000 back in 1999; books were written on "Dow 40,000".

4) A lot is written on why the party will continue - quantitative easing, inflation etc. Basically, the justifications will come AFTER the rise in prices, so it's really circular logic and in a sense, makes it seem like tail-chasing.

But I do agree the party may continue for yet some more time. After all, as Buffett says, this is a dance in a room without clocks, so no one knows when midnight will come!

(04-11-2010, 02:41 PM)kazukirai Wrote: For all the Buffett-ites, Warren Buffett has also recently come out and said something on Gold:

"You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

With oil and money, it is true that these are valuable resources but these can be gone, can raise envy of others who will try to steal or rob or take it for themselves (america invaded iraq).

So I'll take the land. Wealth of the land can be self renewal. Grow something on it, harvest it and sell that harvest for money, then squander that money tomorrow, next year that wealth can grow itself back again.

(04-11-2010, 02:59 PM)Musicwhiz Wrote: 1) More people think it is a viable and long-term asset class (think - the common [lay]man on the street).

3) More news on how gold will continue smashing records of US$2,000 per ounce or even US$3,000 per ounce. The same happened when the Dow smashed through 10,000 back in 1999; books were written on "Dow 40,000".

This reminds me of a true story I heard in Uni some 3 years back (2007). Two of my friends (Economics guys) were talking about how another guy (an Engineering grad) said that gold would hit US$5,000 in no time at all. They laughed at the suggestion of course.

Of course with hindsight, we all know whether Gold is anywhere near that level but the moral of the story is that sometimes (and this applies to a lot people no matter what sort of training they've had) the euphoria and recent past creates a very strong anchoring and recency bias that helps fuel the madness of the crowd.

I've never really bought into the whole Gold thing mainly because, if the SGD appreciates against the USD, that'd kind of limit your gains too no? Although the Asian economies that are heavily export dependent will try to keep their currencies down, there would be upward pressure on the currency.

Anyhow, these type of parties are too complicated for me.

(04-11-2010, 03:41 PM)kazukirai Wrote: I've never really bought into the whole Gold thing mainly because, if the SGD appreciates against the USD, that'd kind of limit your gains too no?

You are correct for the situation we are facing now, because gold is priced in US Dollar right now. However, gold, along with the US Dollar, has a special status that other currencies may not enjoy - it is widely recongised as a valuable wealth media. Below is a story I read and received well from a book :

|| The incident is one of the most memorable of my career. Never before or since has the value of gold in preserving assets been made so abundantly clear to me. It was the mid-1970s. The United States was finally extricating itself from the conflict in South Vietnam. Thousands of South Vietnamese had fled their embattled homeland rather than face the vengeance of the rapidly advancing Communist forces.

In my office, a couple from South Vietnam who had been part of that exodus sat across from me. They had come to sell their gold. In broken English, the man told me the story of how he and his wife had escaped the fall of Saigon and certain reprisal by North Vietnamese troops. They got out with nothing more than a few personal belongings and the small cache of gold he now spread before me on my desk. His eyes widened as he explained why they were lucky to have survived those last fearful days of the South Vietnamese Republic. They had scrambled onto a fishing boat and had sailed into South China Sea, where they were rescued by the U.S. Navy. These were Vietnamese "boat people", survivors of that chapter in the tragedy of Indochina. Now they were about to redeem their life savings in gold so that they could start a new business in the United States.

It wasn't much gold - about 30 ounches. The couple considered themselves very fortunate to have escaped with this small hoard of gold. They thanked me profusely for buying it.

Today, I still remember that Vietnamese couple and how important gold can be to a family's future. Had the couple escaped with South Vietnamese paper money instead of gold, I could have done nothing for them. There was no exchange rate for the South Vietnamese currency because there was no longer a South Vietnam ! Wisely, they had converted their savings to gold long before the helcopters lifed U.S. diplomats off the roof of the America Embassy in 1975. ||

Gold and silver is a store of value and it cannot be "printed" like currency can be. It can be a good hedge against inflation. I don't view it as an investment but only as a store of value.