17 Sep 10
Originally posted by PalynkaIf you are long-term hedger, then temporary volatility is irrelevant.
So the biggest drop in gold was the 1979 oil crisis and yet he says it's a good "hedge"? Haha!
His arguments actually defend that gold rises in the run-up to a crisis (see his comments about trust in IOUs) because people don't know where to put their money. This means you get high volatility in gold during crisis (fast rises followed by fast drops). That' ...[text shortened]... ppens in any bubble. Like the musical chairs, the last one to stop dancing is going out.
The price of all investments, not just gold, is partly the product of reflexive psychology. That reflexive psychology affects price does not mean fundamentals are not also or primarily determinants of the prices.
Gold can't be printed on demand. That's a good reason to own it in an era of money supply expansion and looming currency crises due to excessive borrowing. You can't debase gold like you can other currencies.
17 Sep 10
Originally posted by KazetNagorraWell, gold can't be that big a bubble if it's only a sideline investment.
A bubble does not depend on how many people are investing in it, just that significantly more are investing compared to a previous situation.
I think it more likely that other currencies are deflating bubbles.
I guess we'll see.
17 Sep 10
2 edits
Originally posted by IshDaGegghttp://en.wikipedia.org/wiki/Tulip_Mania
Well, gold can't be that big a bubble if it's only a sideline investment.
I think it more likely that other currencies are deflating bubbles.
I guess we'll see.
Do not underestimate the irrationality of people. And as Warren Buffett said: "be fearful when others are greedy, and be greedy when others are fearful."
17 Sep 10
Originally posted by IshDaGeggJust to be clear, what are you hedging in that long-term?
If you are long-term hedger, then temporary volatility is irrelevant.
The price of all investments, not just gold, is partly the product of reflexive psychology. That reflexive psychology affects price does not mean fundamentals are not also or primarily determinants of the prices.
Gold can't be printed on demand. That's a good reason to own it in an ...[text shortened]... rency crises due to excessive borrowing. You can't debase gold like you can other currencies.
Because you seem to think a given asset or commodity can be a good hedge...in general. But I don't even know what that means.
17 Sep 10
Originally posted by KazetNagorraNobody doubts the existence of irrational behavior and bubbles.
http://en.wikipedia.org/wiki/Tulip_Mania
Do not underestimate the irrationality of people. And as Warren Buffett said: "be fearful when others are greedy, and be greedy when others are fearful."
The question is where is the best place to invest your money. One could argue there is no other decent place to invest than precious metals right now.
17 Sep 10
Originally posted by Metal BrainFollowing Warren's advice, you should put your money in an undervalued asset, an asset which is viewed much more pessimistically than is reasonable. That's not gold, of course. Perhaps PIIGS bonds, though that is risky and I'm not adequately aware of the risk to judge properly whether it would be a good investment.
Nobody doubts the existence of irrational behavior and bubbles.
The question is where is the best place to invest your money. One could argue there is no other decent place to invest than precious metals right now.
17 Sep 10
Originally posted by KazetNagorramight be a good time to invest in real estate.
Following Warren's advice, you should put your money in an undervalued asset, an asset which is viewed much more pessimistically than is reasonable. That's not gold, of course. Perhaps PIIGS bonds, though that is risky and I'm not adequately aware of the risk to judge properly whether it would be a good investment.
19 Sep 10
1 edit
Originally posted by KazetNagorraI thought a bubble was when the price of a commodity was significantly higher because people were investing it thus increasing its value significantly above its 'true' value.
A bubble does not depend on how many people are investing in it, just that significantly more are investing compared to a previous situation.
Am I totally wrong about this? I am not an economist.
If every one sold their stock of gold, then presumably some businesses would still be buying gold for actual non-investment uses. But the price would drop significantly.
Similarly a house is seen as having some value other than pure investment value and you may choose to keep your house whatever the current price.
But if you define a bubble the way you did, then there is no guarantee that it will burst, and no real indication of what will happen if it does. Why should it price go back to former levels? It could go much lower if investors loose all faith in gold, or it could stay high if investors consider it a better long term investment than other options (such as currency).
19 Sep 10
Originally posted by twhiteheadThere is never a "guarantee" that bubbles burst. Also, bubbles may burst quite slowly if the commodity is only moderately overvalued.
I thought a bubble was when the price of a commodity was significantly higher because people were investing it thus increasing its value significantly above its 'true' value.
Am I totally wrong about this? I am not an economist.
If every one sold their stock of gold, then presumably some businesses would still be buying gold for actual non-investment ...[text shortened]... if investors consider it a better long term investment than other options (such as currency).
19 Sep 10
Originally posted by KazetNagorraAnother sign of a bubble is irrational exuberance.
http://en.wikipedia.org/wiki/Tulip_Mania
Do not underestimate the irrationality of people. And as Warren Buffett said: "be fearful when others are greedy, and be greedy when others are fearful."
Cue: tulips, property, dot-coms.
But this does not currently exist in the case of gold. If there is anything irrational driving up the price, it is irrational caution. Has there ever been another bubble inflated by irrational caution?
Even if there has been, I also cannot see why the caution is irrational this time around.
It's a case of being fearful when others are being complacent.