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Author Topic: Buying Gold to hedge against inflation  (Read 71330 times)

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Offline JeanClaude

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Buying Gold to hedge against inflation
« on: March 10, 2010, 11:38:49 AM »
Gold is at 1150 usd and rising, .......anyone scared yet?
http://www.youtube.com/user/geraldcelente#p/u/8/1pOC0eHaeA8

By the way, I have read somewhere that only Ukrainian nationals can buy farmland? Or is this the wrong country to invest into assest like that?


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Offline Chris

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Re: Buying Gold to hedge against inflation
« Reply #1 on: March 10, 2010, 12:05:21 PM »
Gold is at 1150 usd and rising, .......anyone scared yet?
http://www.youtube.com/user/geraldcelente#p/u/8/1pOC0eHaeA8

By the way, I have read somewhere that only Ukrainian nationals can buy farmland? Or is this the wrong country to invest into assest like that?




The third biggest land holder/farmer (farmland) in Ukraine is a British Company, not sure how they go about buying it though. I was going to buy some 2-3 years ago but having a Ukrainian wife would have sorted out any problems, not sure if you as a foreignor can buy/own land or not and even if you could, it is still risky owning something where the rules can change on someones whim.

Chris

Offline JeanClaude

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Re: Buying Gold to hedge against inflation
« Reply #2 on: March 10, 2010, 12:53:56 PM »
Gold is at 1150 usd and rising, .......anyone scared yet?
http://www.youtube.com/user/geraldcelente#p/u/8/1pOC0eHaeA8

By the way, I have read somewhere that only Ukrainian nationals can buy farmland? Or is this the wrong country to invest into assest like that?




The third biggest land holder/farmer (farmland) in Ukraine is a British Company, not sure how they go about buying it though. I was going to buy some 2-3 years ago but having a Ukrainian wife would have sorted out any problems, not sure if you as a foreignor can buy/own land or not and even if you could, it is still risky owning something where the rules can change on someones whim.

Chris

Hey Chris, that is really weird, do you have a name of that company, so i can ask some questions in the legal forums
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Re: Buying Gold to hedge against inflation
« Reply #3 on: March 10, 2010, 01:19:09 PM »
Gold is at 1150 usd and rising, .......anyone scared yet?

I'm not a huge alarmist, but I have been buying 1 South African Krugerrand every three months for the past 3 years - more to provide a bit of diversification than a fear about the collapse of the worldwide financial markets. 
"If you obey all the rules, you miss all the fun" - Katharine Hepburn

Offline Manny

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Re: Buying Gold to hedge against inflation
« Reply #4 on: March 10, 2010, 03:38:46 PM »
The Sovereign Society were tipping gold years ago.

The boat has sailed. When everyone knows about it - as with everything - it is time to sell.

Bill Hill once said, "When the Dummies are getting rich is the time you sell" - he was right.

Tech stocks, property bubble, the dollar (for us)........ when everyone knows, its time to bail. Everyone knows about metals right now.
please tell me where I'm being / have been 'dishonest'? 
Yes, he said that.........

Offline JeanClaude

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Re: Buying Gold to hedge against inflation
« Reply #5 on: March 10, 2010, 05:59:32 PM »
Manny,

All things equal you would be right, but i believe it is not a bubble as bubbles are artificially created by low interest rates.

Low interest rates-> your savings decline because  inflation surpasses interest on savings-> people run to the stockmarket-> overinvestment in stocks-> bubble.

Gold has been riding steadily since 2002 and sharply since 2006 (The Fed stopped publishing M3 numbers in 2006 so nobody knows how much USD is out there)

I hear Gold rising to 2000 easily, but it all depends on the action of the central banks, and it is not looking good! 
Your lucky the UK is not in the Eurozone, (Greece situation)
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Online Herrie

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Re: Buying Gold to hedge against inflation
« Reply #6 on: March 11, 2010, 12:27:58 AM »
....
Your lucky the UK is not in the Eurozone, (Greece situation)
I wouldn't be too sure about that. Stories go already that UK *might* be the next Greece. Pending elections and insecurities about the future policies of the government steer investors away from the UK. The GBP has been dropping again in the past few weeks due to this...

Offline Chris

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Re: Buying Gold to hedge against inflation
« Reply #7 on: March 11, 2010, 01:23:17 AM »
Gold is at 1150 usd and rising, .......anyone scared yet?
http://www.youtube.com/user/geraldcelente#p/u/8/1pOC0eHaeA8

By the way, I have read somewhere that only Ukrainian nationals can buy farmland? Or is this the wrong country to invest into assest like that?




The third biggest land holder/farmer (farmland) in Ukraine is a British Company, not sure how they go about buying it though. I was going to buy some 2-3 years ago but having a Ukrainian wife would have sorted out any problems, not sure if you as a foreignor can buy/own land or not and even if you could, it is still risky owning something where the rules can change on someones whim.

Chris

Hey Chris, that is really weird, do you have a name of that company, so i can ask some questions in the legal forums

Jean Claude

Read this thread

Quote from: Chris
Ukraine  has a huge farming potential, but it is clogged with small farms, growing patch-work quilts of near-subsistence crops, in between thousands of hectares of land abandoned years ago.

The soil is superb black loam and the rainfall in Western Ukraine at least is a very adequate 600mm - 700mm, long hot summer days ensure 6tonnes per hectare of milling wheat and 4tonnes per hectare of oilseed rape can be harvested under long summers clear blue skies.

However,  there is virtually no investment. Nobody will back what was the former breadbasket of the Soviet Union. Nobody, that is, apart from a few British entrepreneurs here and there who have already secured over 60,000ha of prime arable land and their goal is to secure over 500,000 hectares over the next five years.

This group of British entreprenuers are already the third largest farmer in Ukraine and soon it will be the largest.

Western Ukraine offers ideal growing conditions. Three hundred kilometres further east the soil is still as good, but rainfall is half what it is in this region.

Of course these British entreprenuers are using the latest farming equipment, and are therefore much more efficient than the horse and cart are in the pictures above. I have never seen Ukrainian farmers using anything as modern as this tractor below.


then check out Landkom

Sorry away on business no time to search for anymore at the moment.

Chris

Online andrewfi

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Re: Buying Gold to hedge against inflation
« Reply #8 on: March 11, 2010, 03:14:24 AM »
Manny,

All things equal you would be right, but i believe it is not a bubble as bubbles are artificially created by low interest rates.


Investment bubbles are not created by artificially low interest rates but low rates are commonly found in bubble conditions. At their base markets are driven by what people think will happen and much less by underlying real factors and it is this that is the root cause of a bubble. A bubble is, IMHO, an expression of a group fantasy about some commodity or another. The fantasy being reinforced by the entry of new players into the market which leads to artificial scarcity and thus price inflation. It is this reason that leads to the commonly held (and pretty truthful) belief that once the man on the Clapham omnibus is talking about the bubble commodity then it is already time to exit the market because once the mass enters the market there is nobody else to drive the price upward.

Gold is intersting stuff because its trading price, like most oil, is usually denominated in US dollars and thus gold is much more a hedge against currency depreciation for holders of US dollars than it is for holders of any other currency. The effect of this is that if the dollar decreases in value then the price of gold, for dollar holders goes up but for holders of other currencies gold can actually stay stable or even get cheaper. Exactly the same process can be seen with gasoline prices at petrol stations.

So, for you Jean Claude as ( I am guessing) a holder of currencies other than the USD, what is happening to gold when denominated in your main currency? I suggest that for the recent past it HAS been appreciating but that could change.

For most buyers of gold the deal is more like a game of musical chairs. Most people will end up losing, money a few will win and those entering the market now are VERY unlikely to have the resources or skills to manage their investment well, after all, if they had they'd have been buying in yonks ago and would be selling round about now, or in the very near future, depending upon their degree of risk aversion.

Interestingly, the same thing happened on a forerunner to this forum in respect of real estate. RE became a topic of interest with loads of newly minted 'experts' touting their favourite strategies or peddling free advice. Within a matter of months they were all eating their shirts! The fun bit was that one could look at the fundamentals and say, with confidence, that they were going to become short eaters.

Gold is getting to be a bit of a gamble now because, apart from the market reaching saturation, many major currencies are engaged in a battle of beggar my neighbour by trying to devalue in relation to other currencies, this makes the forex markets much more volatile and harder to predict and so using a currency proxy (gold), priced in a secondhand currency (USD) becomes a distinctly dicey deal.

Don't forget that historically gold's value as a store of wealth was its portability and relative scarcity. Hiding a decent value of gold in one's personal clothing is not hard. Hedging against inflation (currency devaluation) is a much more recent phenomenon since we moved away from the gold standard toward fiat currencies.

WRT farm land in Ukraine as I understand it there is a moratorium on land sales for Ukrainians AND foreigners so you'd have to lease the land. This is a big issue as it means that farmers are unable to access finance as securitisation of their major asset (land) is pretty much impossible so acquiring capital for investment is difficult. This has been an issue since the 1990's and one which should have been dealt with by now but the government is afraid, with justification, that free sale of land would lead to agribusinesses moving toward a new form of collectivisation where the landowners would not be Ukrainian and owner ship would be taken out of the hands of the current landowners, the former collective workers. Ukraine agriculture is an odd business. The government is in a catch-22 they KNOW what needs to be done to improve productivity but can not do it because the almost inevitable result would be the loss of most of the agricultural land to foreign control (de facto collectivisation) and, as policy, this is anathema to governments of all colours and has been for many years.
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Re: Buying Gold to hedge against inflation
« Reply #9 on: March 11, 2010, 05:30:06 AM »
Don't forget that historically gold's value as a store of wealth was its portability and relative scarcity. Hiding a decent value of gold in one's personal clothing is not hard. Hedging against inflation (currency devaluation) is a much more recent phenomenon since we moved away from the gold standard toward fiat currencies. 

Exactly !  The fees involved with assaying gold each time you want to change title to the property make it a rather inappropriate short-term trading vehicle.  My overall retirement portfolio is close to $500,000 with no exposure to precious metals.  I thought a little diversification in these uncertain times might prove beneficial.  In the next three years I'm looking to have 5% of my total portfolio in gold coins, preferably Krugerrands, appraised by a recognized services as real, sealed in plastic, rated as to condition and therefore highly liquid. 
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Offline JeanClaude

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Re: Buying Gold to hedge against inflation
« Reply #10 on: March 11, 2010, 01:56:29 PM »
 
Quote
Investment bubbles are not created by artificially low interest rates but low rates are commonly found in bubble conditions.

No that is not true, "pump and dump cycles" are caused by central banks (government) and their manipulation of the money supply by creating wealth out of nothing through the fractional reserve banking system on "irregular deposits contracts" (Note: this is different then savingsaccount!!). The "dump" cycle is the free market (the real market) destroying this fake wealth!

Although the practise of banks using the "irregular deposit contracts" as a source for investing was very illegal (till 1934 in Europe at least) it has now been sectioned by law as government uses the "primary banking" institutes as subsidiaries in the money creation process.

It is just a delayed form of Mugabenomics! Since 1970 the USD has lost 75% of its value through inflation.

Quote
Don't forget that historically gold's value as a store of wealth

Gold is the real value, the rest is just ink on paper (fiat) money (the government uses force of arms -law- to let your forcefully accept this paper as a "store" of your labor) , the reason why politicians hate gold, its because you cannot create gold out of thin air as you would paper fiat Money by running a printing press and thereby stealing your savings via inflation
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Re: Buying Gold to hedge against inflation
« Reply #11 on: March 11, 2010, 06:21:31 PM »
Jean, you need to read history. Speculative bubbles have been going on for centuries, before central banks existed, two that you may not have read about (coz you'd not have written as you did if you knew this stuff) but that illustrate the point are the Tulip Mania in the Netherlands in the 17th century and the South Sea Bubble in the 18th century. Neither were due to central banking or even low interest rates. The latter case was actually enabled by HIGH interest rates which in turn enabled a company with a monopoly to offer the prospect of uncharacteristically high rates of return on investments. It became fashionable to own shares in the Sough Sea Company and even though the company printed more and more shares a shortage caused prices to rise unfeasibly high and there was an inevitable crash.

It has become fashionable to blame all ills in the world upon FRB and central banks but it simply is not true. FRB has its problems but market prices are only ever a reflection of the belief of buyers and sellers. It is true that general price levels tend to follow money supply but that is a more general effect and is called price inflation.  However you in your subsequnet post posited a new reason for bubbles, forgetting about your first idea.

It IS true to suggest, as you did, that a fall in prices after a speculative bubble reflects a reallocation of investment to more sensible places but that is entirely obvious and rates a big DUH? on the scale of insightful thought. ;)

Gold has NO intrinsic value. Its only value is what we choose to believe. We could choose, as other cultures have done, to value certain kinds of sea shells. Gold has some advantages, it does not break and it is convenient to divide and subdivide but gold is not even particularly rare. As I noted, historically its value was as a store of wealth as generations numberless of refugees can testify.
This article explains in simple terms about the palce of gold in our economy and psyche: http://biz.thestar.com.my/news/story.asp?file=/2009/11/23/business/5146864&sec=business you might want to note that in very general terms the value of gold expressed in dollars follws the CPI, ie, in the long run the value of gold in real terms remains fairly constant which is its true 'value'. In the short term there will always be arbitrage opportunities but you can see from that chart that the arbitrage opportunity right now is very small.
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Offline Maxx

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Re: Buying Gold to hedge against inflation
« Reply #12 on: March 11, 2010, 06:28:06 PM »
I have been in the gold biz for the past thirty years. Self employed in it for twenty of that. Probably one of the few people you have known who can say they get paid in gold. I am going post the following in plain speak.

Quote from Shakespear:

Quote
Exactly !  The fees involved with assaying gold each time you want to change title to the property make it a rather inappropriate short-term trading vehicle.  My overall retirement portfolio is close to $500,000 with no exposure to precious metals.  I thought a little diversification in these uncertain times might prove beneficial.  In the next three years I'm looking to have 5% of my total portfolio in gold coins, preferably Krugerrands, appraised by a recognized services as real, sealed in plastic, rated as to condition and therefore highly liquid.

and:

Quote
I'm not a huge alarmist, but I have been buying 1 South African Krugerrand every three months for the past 3 years - more to provide a bit of diversification than a fear about the collapse of the worldwide financial markets.

So you have about 12 "Rands" plus the self assurance that they are real by getting an authenticity certificate from some sort of recognized service. As someone who buys coins for my customers I give you a few comments on this. I have never seen a counterfeit gold coin but I have seen counterfeit silver dollars. I seen some last Monday. Usually a magnet will detect them as they are made of steel. Also they are tumbled to age them. Mostly they come out of China. In regards to gold coin it would be easy to tell a fake from the real thing. Gold coins have a specific density that is next to impossible to reproduce. One could do it with tungsten but the cost would be prohibitive. Tungsten has been used with gold bullion (bars) in the 400 Troy Ounce range to rip off the big boys. One ounce gold coins no one would bother with. So it's just a matter to take a good look at the coin and feel it's weight (density) and that will tell you if it's gold or not. Roughly a present day coin is about half the weight of a same size silver coin and a gold coin is about twice the weight of a silver, roughly. A gold coin looks and feels like it is worth something unlike the slugs we call coins now. Frankly I do not see the need for documentation. Of course there are those who make a living appraising things who might disagree...

The preferred coin among myself and my peers in the business is the Canadian Maple leaf. Reason being is that it is 99.99% fine gold and not alloyed with base metals like the US Eagle (90%) and SA Rand (91.66%). The later two have to be refined (what I do) to pure metal (like the Maple Leaf) in order to be used for where gold is usually consumed (dental and jewelry alloys).





Offline Maxx

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Re: Buying Gold to hedge against inflation
« Reply #13 on: March 11, 2010, 07:38:08 PM »

It is just a delayed form of Mugabenomics! Since 1970 the USD has lost 75% of its value through inflation.

 its because you cannot create gold out of thin air as you would paper fiat Money by running a printing press and thereby stealing your savings via inflation


and from Andrewfi quote:
Quote
Gold has NO intrinsic value. Its only value is what we choose to believe. We could choose, as other cultures have done, to value certain kinds of sea shells. Gold has some advantages, it does not break and it is convenient to divide and subdivide but gold is not even particularly rare. As I noted, historically its value was as a store of wealth as generations numberless of refugees can testify.

BTW I do not need to be reminded that price increases are not the same as inflation.

Anyway being old enough to have lived over the years in question I can add something here. It was the summer of '65 when I helped my parents paint their way into for a down payment on a new house. Three bedrooms, one bath, hardwood floors throughout ranch home with basement. Brand new, $20,000. Five years later they sold it for $25,000. A candy bar was 10 cents. A gallon of gasoline 25 cents. Today that home now sells for $200,000. A candy bar is a buck. Gasoline $2.50. What happened? Starting in the mid sixties was the Vietnam war and Johnson's "Great Society". France decided they wanted their gold back from America who had been holding it. They sent warships to escort it back. Europe and elsewhere were turning their US dollars reserves in for gold at it's fixed price of $35 an ounce. The US gold reserves dwindled from 21,000 tons to just 7,000 when Nixon slammed the gold window shut in August '71. Take a look at the chart to see what happened next,



I disagree with Andrew that gold has no intrinsic value, that it is not particularly rare and that the central banks are not particularly to blame for our currency devaluation.

Gold has many uses besides it's use in storage of wealth, jewelry, dental and electronics etc.

It is rare enough the argument is made that it is useless as a medium of exchange as there is so little of it. The illustration is that all the gold mined throughout history would barely fill two Olympic sized swimming pools. ?

The Central bankers and with their cover the politicians, control the money supply. They have done a disgraceful job of it these past 40 years. This is why with the soon-to-be multi-trillion dollar annual deficits people are turning to gold. The IMF does liquidate some of their gold holdings to suppress the price but the gold keeps getting gobbled up. Eventually our entitlement society will understand that we cannot maintain our standard of living by printing up money or borrowing it from Japan, China and the OPEC nations. Then the new gold rush will begin.

Andrew buddy, you should have more respect for the noble metal.



Maxx









Offline hector

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Re: Buying Gold to hedge against inflation
« Reply #14 on: March 12, 2010, 05:00:45 PM »
Gold is a suckers' bet that is fed to you by traders who own gold and wish to see it appreciate so they can gain from your investment. You only want gold if you have over a million dollars and want to invest 3% of that million.

If you live in the U.S., I would avoid buying Gold for concerns of inflation of the U.S. dollar. Inflation has been flat over the past six months. You're not going to gain anything in short.

In the long run for the past 30 years, Gold has not appreciated in value to match the U.S. consumer price index that tracks inflation. You are not gaining anything in the long term if you lay the gold price curve over the CPI curve. If gold was inflation adjusted then it would be over 10 times the actual price that it sells for today. That's a suckers' bet.