Posted by Frugal on 20th February 2010
Because I haven’t been blogging often, some of my friends & relatives have been going through the insider track via phoning me or emailing me directly. I have been spending an extraordinary amount of time on watching over stocks and my own portfolio. This year will be “the year” that I will either break or make my net worth (although I am inclined to think that both may happen due to heightened volatility in the sequence that I just described). Given the relative importance of a couple of hundred dollars from blogging versus my own portfolio, it is quite an obvious choice for me to decide on where to spend my time on. I apologize to the faithful supporters/readers of this site, who have not been able to get more top-quality content here. The best way is to subscribe your email, so that if there is any update, you could get an email alert.
Here is some recap (the original quesitons are in “blue”):
(written on 1/4/2010:)
Question: If $US dollar depreciates, gold may only go up in terms of $US dollar, but may not necessarily go up for non-US holders. Isn’t that right?
Yes, what you said is entirely plausible.
What I believe will happen is that $USD will actually appreciate first. This will result in gold prices at new high in non-USD first, to catch up with the new high in $USD that has already happened. (Actually, this statement has ALREADY been fulfilled, except in Australian currency.)
I believe it’s possible that $USD will appreciate towards mid-2011. Then there will be a depreciation of $USD towards 2015/2016. Regardless, my belief is that there will be an international government bond market crisis, which will be the trigger for the final height of gold in all currencies. This crisis either comes in 2010/2011, or 2015/2016 I believe, or both. It may be a multi-stage crisis.
Again, this is all just my own personal forecast/belief.
For non-$US holders like you, there is obviously a possibility that your gain will be much less (or turning into even a loss) relative to US dollar holders. I only watch gold price in $USD mostly, but I do occasionally check gold price in Yen, Euro, Australian, Canadian currencies. The (bull) market will always be in different phases for different currencies, producing different magnitudes of gains. Last time, gold reached new high in Euro (but reached new high in $US first), it went on and gained some 60% I think. This time, gold is much more overbought, and so I think it may take a little more time before it takes the next zoom-up again.
Regardless, I’m not in this market for a single day or a single month or a single year. You can trade in & out all you want, but 2% or 3% differences in prices are absolutely no concern to me. Not even 10%. The reasons is that
1. I don’t have time,
2. Most market timers will end up under-perform.
The bottom line is always that you should ONLY put in as much as you can emotionally handle. Keeping your emotion in check is so much more important than hitting a jackpot, because without being emotionally stable, you simply canNOT be successful in this. Your emotions will end up costing you. So it’s far better to just simply put in the “right” amount (that you can handle), instead of buying/selling a big amount at the absolutely right time. Such mythically successful person that always get everything right simply never exists. If you cannot handle the swings, I suggest you sell some. The goal is to be successful financially, but you cannot reach that goal without being emotionally composed.
Also, every person has a different investing style. So you will need to somehow adopt all the information, and fit them into your own style. You cannot follow someone blindly, and expect that it’s going to be gain automatically. Make sure you find your own style, your own “right” amount, and your own “right timing”.
Question (written on 2/11/10): I don’t quite understand what’s the benefit of actually owning physical gold instead of the paper gold. Is it to prevent the possibility of bank going bankrupt and getting nothing? Assuming the bank will not go bankrupt, holding paper gold has the advantage of not worrying about stealing and can be exchanged easily at the bank. If the large banks go bankrupt, the money saving in banks are probably gone too.
Many different scenarios can happen:
1. The bank/government refuse to give your paper gold back, unless it’s at the “official” but much lower price that you could fetch at black market.
2. The bank/government pass laws to over-tax any profits/transactions on paper gold, so that there is no motivation to own paper gold for any existing paper gold owners or future paper gold owners.
3. The bank goes bankrupt, and you only get part of your savings back.
4. The bank/government refuse to give your paper gold back out-right. You simply cannot “withdraw”.
5. The bank claims that part of the paper gold is lost and unrecoverable, and somehow the paper gold is not insured by the government.
6. The bank/government only allows you to SELL out from paper gold to paper. But either legally or decreed by bank that no BUY can be allowed.
Bottomline, when the bad money (paper or paper gold) drives out good money (physical gold), the good money WILL disappear from the market (except in the black market). This phrase came from Roman empire I believe. The “bad money” are the coins that have very little silver/gold. The people gradually found out, and everybody hoards the “good money” or the older coins that have much more silver/gold. At the end, the bad money drives out all the good money, because everybody will only spend the bad money, but not the good money.
There are many rumors that most of the big international banks/investment brokerages are shorting gold/silver when the customers go to buy paper gold/silver. A recent lawsuit against Morgan Stanley proved that was exactly the case at least for Morgan Stanley. Morgan Stanley simply took the money intended for silver, held a short position in silver against customers, and charge phantom “storage fee” every year.
If you simply substitute US dollar for gold in the above sentences, and just focus on some of the countries in Latin America as an example, several such things have happened exactly just like above.
Please note that I’m short-term bullish on US dollar as indicated above. This can easily translate into bearish resolution in US & global stock markets, and intermediate correction in gold in $US dollar, and also mining stocks. Although I do not rule out the possibility of $US and gold rising together.