GOLD PRICES - Justified or bubble?

[Zeytwinder-migration]

I like to buy 1 oz. Gold - Saints, Liberties, even Eagles and Buffalo gold.

 

With the dollar dropping faster than a hooker's knickers, I would love to hear the consensus of our Forum on gold (and perhaps other metal) prices. I'm slowing down on the bullion because I am afraid of a bubble. Gold prices have been going up mainly due to the declining dollar and some mining issues in South Africa - Platinum has gone bonkers because of mining problems in South Africa as well.

 

I am in no way an expert - but feel that I am surrounded by some really smart folks here - and in our own collector's world, our consensus does drive a micro-economy on eBay etc.

 

So, gold is over $900....

 

1. Buy more - it's going up to $1000!

2. Be cautious - it's a bubble!

3. Sell!!!!!!

4. Your $0.02 here...

 

Thanks!

 

[EZ_E]

I said buy more merely because I do not think that it is a bubble but instead is a sign of a sickened US economy. Perhaps the price will fluctuate +/- $100 but I don't think that is will ever drop to previous low levels. However, I have no plans on buying bullion, only collector coins.

[MBA101]

Gold is still undervalued. Should be at at least 1000.

[MarkFeld]

Gold is still undervalued. Should be at at least 1000.

I think gold will go higher over the next few months, but what do you base your statements on?

[gmarguli]

I think gold will go down. Look at all the novices buying gold because it is hot right now and they want to get in before the rocket takes off. Commoners are usually wrong and the epitome of "Buy High, Sell Low".

[RI AL]

I remember maybe a month or so ago (roughly) there was a topic here called, "gold $800 an ounce?" or something to that effect. I thought that because I needed a new computer (on order...don't EVER order a Dell before searching for Dell coupons online...I found a $300 coupon VERY easily and all I had to do was give Dell the number when I phoned in my order...snap...$300 in my pocket). Anyway...as I was saying...so I waited to buy my $50 buffalo...well...now at about $130 more ...I still haven't bought one. (Now my wife wants a Toyota Prius...both our cars have over 100k miles on them) so the gold $50 is on hold again.

 

Personally, I think gold will continue to climb. I hear that some tourist spots in the U.S. are accepting EUROS as well as dollars and that gives me the creeps. (it was fine when my wife and I were living in Peru and could get double the "official" exchange rate from seedy street vendors but now that the shoe is on the other foot...I'm not liking it one bit here at "home"). Gold is a store of value and if we do have a real economic "recession" in the U.S., I would like to have more assets in gold in case everything goes "poof". If I could, I would buy more.

 

Ramble..ramble...

 

Now that brings ME to a question...generally speaking, has numismatic gold kept pace with the increase in gold price or increased more rapidly? I have been watching 2 gold Peru coins on E-Bay (I purchased at near melt when we were working there). One is approximately .7 oz, and the other is 1.4 oz +or-. These have been on my watch list for many weeks ( not selling) but the asking price has increased far far more rapidly than justified by gold content. Even on smaller Peru bullion gold "trade pieces" the price has increased at a faster rate than justified by spot gold price. I am wondering if there is a bit of panic buying going on?

 

Ri Al

 

[Revenant]

I think there's an aweful lot of panic and speculative buying going on right now because of the economy and people with insane visions of $1200 or $1500 per ounce (I don't agree but I think $1050 is very possible with all the worried insufficiently_thoughtful_persons running around).

 

I tend to agree with RI AL's observation. Speculative buyers are driving gold bullion to huge per ounce premiums, especially on things like GAEs, and sellers are taking advantage of it.

[Zeytwinder-migration]

I just sold a 1 oz. 1986 Eagle on eBay for $1,125 - PR69DCAM. I can't understand that - I mean, I gladly ship the coin out, but based on that I feel there is sentiment out there that gold will continue to rise - and perhaps not justified other than panic as you said.

[World Colonial]

I think gold will go down. Look at all the novices buying gold because it is hot right now and they want to get in before the rocket takes off. Commoners are usually wrong and the epitome of "Buy High, Sell Low".

 

I agree with you because opinion has been so lopsidely bullish and in a "normal" environment the public majority is always eventually wrong.but I have been wrong in thinking so to this point . I do not believe that gold is in a bubble but it has been the beneficiary of another bubble, the credit bubble and that bubble is the greatest mania in the history of civilization. If the US (and by implication global) economy is in the EARLY stages of a credit contraction as I believe it is, then it is very likely that gold will fall in USD terms at least temporarily as debtors and speculators sell any and every asset they can in an effort to raise cash and pay down debt.

[World Colonial]

I am not familair with these coins, but normally, I would not pay much (or any) of a premium for world gold numismtic coins. The demand for most of them is too weak to justify it in my opinion.

[MBA101]

Gold is still undervalued. Should be at at least 1000.

I think gold will go higher over the next few months, but what do you base your statements on?

 

I think that the measurements of inflation have been understated and people have been steered away from gold for so long that the actual value has been depressed. The other thing to keep in mind is the panic buying that could drive gold to a peak beyond what we could ever imagine, like the NASDAQ a few years ago.

[ant]

when it comes to gold i look at it as an investment. not collecting. i am not buying gold just selling. i dont wana chance being the 1 holding that bag when (if) it falls.

 

im in jewelery and right now its KILLIN the large ring sale. i sold 3 rings for valentines day this yr. people just cant buy what they want so they buy small (ugly)items just to save money. i am only able to make half the jewelery i did last yr at this time due to gold price.

 

i can get diamonds far cheaper than gold right now. and buyers are noticing. instead of buying a whole piece they buy the stone and upgrade a lil in there old setting.

 

i say whats wrong with just selling instead of waiting . it could as easily go down and not up. and at these prices thats already a good profit to be made. IS THE RISK WORTH THE SMALL PRICE CHANGE UP?

[jtryka]

I am not sure what world you all are living in where all the common folks are buying up gold, but in my office of 70 people, I am the only one buying gold. None of the others would even know where to buy it much less are buying it. They are all still buying stocks! If there comes a time where my office mates are talking up gold, then I know it'll be time to sell, but I am not expecting that till we see gold at $3,000 or higher.

[hoard]

Over the last few months we have seen project (I am in the large national multifamily building arena) financials re-evaluated by all lending institutions. This is partly a product of housing value decreases, thus a reduction in equity available to make a project happen but also risk ratios increasing. As banks and other lenders begin to re-evaluate their risk you are going to see a further decrease in credit availability. Much/some of our work involves tax credit syndication and in the last month the value of tax credits has decreased approximately 15% i.e. tax credit financing that was once worth 0.90c on the $ is now 0.70 to 0.75cents.

 

Take a look at your local markets and see how many condo and other projects are not being constructed. This is going to get worse this year in my opinion. The federal reserve is going to continue to attempt to ease credit by printing money e.g. the latest $65 billion in bond sales, or lowering rates but if the lenders are not initiating lending positions because their perceived risk is to great, or that the risk premium they want makes a project prohibitive to construct/develop, the economy just continues to slow.

 

As the FED increases money supply e.g. sells bonds or reduces deposit ratios, devaluing the dollar, gold becomes more expensive in terms of the USD. The US dollar is the world trading currency, which means many goods and services are priced in U.S. dollars i.e. oil, coffee, precious metals, as the USD devaluates the relative prices of these goods increases in anticipation of the dollar decline.

 

Think in terms of the oil producers, if they know that the dollars they are going to receive for their goods is declining in purchasing power, they must raise the price of the barrel of oil to protect their investment. No one wants to hold a currency that is declining in value as it erodes your purchasing power. This is why commodity prices are rising.

 

It is for these reasons; I believe precious metals are going to prices the likes of which have never been seen. If you adjust for price inflation the 1983 gold high of $8xx is approximately $3,000 in today’s USD. Personally, I believe gold will see this price and maybe more, silver will follow. We are due for an economic correction.

 

edited to add: price of gold is justified.

[astrostu]

I effectively agree with hoard's post, but perhaps to less of an extreme. I think that gold will continue to climb somewhat steadily through the current/coming recession (depending upon what you read), so for about the next year or so. I think it will go above $1000/oz, but I don't think it will go above $2000/oz this decade (unless something drastic happens). I think after the recession, which I would guesstimate should happen within a year of the 2008 elections, gold will sink quickly but stay well above what it was at earlier in 2007 (probably above $800-900/oz) as a market correction.

 

I have 1 oz (2 1/2-oz Jefferson's Liberty) of gold that I want to liquidate, and I'm waiting until the market's a bit better to do so, but I plan on doing it by the end of the year.

[jackson64]

Gold will go to insane levels--I base this also upon a full page Wall Street Journal ad that explained/showed how the US govt has intentionally tried to suppress the value of gold...also gold has not increased proportionately with other inflationary factors so it was overdue.....I've also heard that there may be serious unreported issues with how much gold we actually have in our reserves

 

Some organization is calling for a true audit/accounting of the gold reserves and how much actually belongs to the USA

[Zeytwinder-migration]

Good point Jackson64. Why does the US Treasury keep the inventory at the US Gold Depository (Ft. Knox) a secret? If that door is kicked in by the GSA or GAO one day and we have a deficit, I can see for financial chaos.

[coinman1794]

Just as early US issues were due for an increase at the end of the 90s, gold has been due for an increase, except it has a much broader intrinsic appeal than old coins; it's one of the basic commodities. Throughout history it's been bread, water/wine, and gold!

 

[lkenefic]

I think as long as the dollar remains depressed in world markets, gold and other PMs will have legs. Heck, I just heard on the Phoenix news that vendors are taking Euros...L

[me0505]

I know I an a "newbie," but so long as the dollar is sinking as compared to the Looney and the Euro, and the world currency for that matter........ I see Gold on the rise for a while. I hope this is true, as well as Platinum (I just bought Plat and Gold). We'll see if I hit it right.

 

Regards,

Eric

[EZ_E]

Good point Jackson64. Why does the US Treasury keep the inventory at the US Gold Depository (Ft. Knox) a secret? If that door is kicked in by the GSA or GAO one day and we have a deficit, I can see for financial chaos.

 

To my knowledge, most of the US gold was transfered to Europe in the '50's and '60's.

[BULLY]

It is for these reasons; I believe precious metals are going to prices the likes of which have never been seen. If you adjust for price inflation the 1983 gold high of $8xx is approximately $3,000 in today’s USD. Personally, I believe gold will see this price and maybe more, silver will follow. We are due for an economic correction.

 

edited to add: price of gold is justified.

 

In the words of the great sage, Smokey Robinson, I second that emotion. While I have no crystal ball, and I am not not committed to the $3,000 gold price, I certainly see room for gold to grow.

 

In recently months and years, it is worthy to note, that SILVER, has significantly outperformed gold, percentage wise. It may seem inexpensive, but it's return has been far greater than gold.

 

I saw someone else mention that colleagues were buying STOCKS. There are plenty of bargains to be had there. While so many people are SELLING stocks now while the market falls, buying stocks as prices drop makes total sense - it's the equivalent of a sale at WalMart or Target -- markdowns! And if the investments you are making are in companies in which you believe, in TRULY GREAT COMPANIES for instance, then a lower price now is unlikely to be an indicator of a real problem, but rather a sign of skittish investors who drive prices down by doing that silly thing of "Buying HIGH and selling LOW." Now, we can do the opposite, and when prices go up, the gains are ours. This method is especially effective if you have a long time horizon, such as 10, 15, or even 25-30 years or more. It's practically a no-brainer for the folks with that kind of time.

 

I think the same holds true for precious metals. There are still bargains to be had. As coin lovers here, there are collectors, investors, and a term I read recently, the "collector/investor." A large number of us fall into that last category because to some degree, we all buy or collect with the hope that what we buy or collect will increase in value someday, whether that be numismatically, or intrinsically.

 

So, let's talk bargains:

 

The 2008 Platinum Eagle 10th Anniversary Proof Set. Limited Edition, 30,000 sets. Gorgeous wooden box. Includes two half ounce coins, including ONE very rare REVERSE PROOF. Price: $1,949.50. Closing price of platinum on Friday? $1,888 per ounce. That puts these sets at $62 over melt! Value? I vote yes, and am I sure glad that I got mine!

 

Until recently, the Mint still had leftover 2007 One Ounce Proof Platinum Eagles coins for $1,740 -- they raised the price the other day to $1,980. I was lucky, I found the bargain on January 25th and got the $1,740 price -- $148 LESS THAN MELT!!!!!!!!!!

 

The Mint is still selling UNCIRCULATED 2007 Silver Eagles for $21.95. Compare that to $31.95 for Proof 2008 Silver Eagles. Silver closed at $17.18 on Friday. For $4.77 over melt, you may buy Silver Eagles directly from the Mint. These are the ones with the "W" mint mark. I grabbed 20 back on January 25th when I got that Platinum Eagle. If they grade well, watch out! Even an MS69 makes it $57 per coin according to the PCGS price guy, granted that is a little high, but some on eBay pay good sums.

 

Now, BUY OR SELL:

 

You may think from what I've said that I fall into the BUY category. Well, I probably do, mostly. It's not that simple.

 

Here's my take. It all depends on your circumstances.

 

If you bought a lot of gold, or silver, or platinum, at LOW prices, and you are concerned that the bottom may fall out, I can understand wanting to sell. I can also understand the people who hope the price may rise even more before they sell to maximize profits. What's a person to do? This problem plagues stockholders every day too.

 

My advice for the holders of precious metals is the same as it is for stockholders who bought low and whose stock, say, has doubled since they bought it. How greedy do you want to be? You made a profit of 100%, isn't that GREAT? Ok, how about this:

What if you consider selling SOME of your stock, or in this case, consider selling SOME of your gold, silver, or platinum, maybe HALF, or a quarter of it, even, that way you take advantage of what, to you, are now HIGH PRICES, and you make your tide profits, and cover what you invested in the first place, and even make a little money for yourself. Then, if the metals go any higher, you still have some to sell then if you wish. If the metals go lower, you don't feel like you missed out on the top.

 

The same holds true for when the market is falling. Do I sell now while the prices are low? This stock is lower than what I paid for it so I'd be taking a loss? The same holds true for those who buy precious metals. Stocks, and in this case precious metals, MIGHT rebound, or they could continue to drop. So, if they DO drop, and you aren't sure what to do, consider selling a PORTION of your holdings, so you don't lose all your money. Then, if it comes back, you still old some gold, silver, or platinum. It it stays depressed for decades to come, at least you made some money before it bottomed out. However, at least with precious metals, they've NEVER been worth "nothing" and if you own coins, there is a numismatic value at play, but the values may still be less than you paid.

 

My point about buying vs. selling is this in a nutshell: It need not be an ALL OR NOTHING proposition. So many people think they must do it that way, be all in, or all out. Well, this isn't the hokey pokey, and you can just put one arm in or take one arm out, without your "whole self." It is especially useful if you are uncertain. Take a partial step, to ease the burden one way or the other, and see the wonders it can work!

[jtryka]

I agree with most of what Bully said, the only difference is where we are in the spectrum of events. On stocks, yes, it's wise to buy when prices are falling if you believe in the company and think the future is still bright. But consider those folks that bought at the beginning of the bear market in 1973, they probably thought exactly the same thing, only it took until 1982 for them to break even on those purchases! Suddenly a 2% savings account looks a whole lot more attractive than the stock market in those situations. In my view, we are basically repeating the 1970s, only this time it's worse since at least until Nixon closed the gold window in 1971, we still had something to support the dollar. Just remember, in that decade we saw gold rise from $35 to $850, an increase of over 2,300%! For those same percentage gains in this current market we would see the price go from $252 to $6,120, which some people certainly believe is possible. In my view, we are about where we were when gold hit $130, in 1974-75. During that period there were some pretty heavy corrections, and lots of people sold and missed out on the move from $130 to $850, of course if they bought at $35, they did make a nice gain too...

[World Colonial]

I'm in the deflation camp over the short to intermediate term. The reason for this is because of the psychological background that I see in the financial markets today. Most people are worried about inflation because of rising prices such as commodities even as the credit contraction and the existing overcapacity and excessive debt loads are signaling the opposite.

 

I believe that inflation will win out - eventually - but that those who are looking for it now will be wrong because the majority is usually or always wrong. People also grossly overestimate the power of the Fed to prevent a credit crunch and an economic contraction. You summarized it well and while the Fed will undoubtedly do everything it can to keep the credit bubble from imploding, if debtor and especially lender psychology is working against them as I believe it is, then they will fail (regardless of what they do or do not do) and get a large part of the blame for it now even though the seeds of this fiasco really originated decades ago.

[Conder101]

Something to think about.

 

No one who gets stuck when a bubble collapses ever believed it was a bubble when he sank his money into it. They all thought there were valid reasons why it would continue upwards.

[World Colonial]

You can read my last post to see that I am in longer term agreement with you on gold prices but I wanted to comment on a few other things you alluded to.

 

There are many people who believe that we are in a repeat or virtual repeat of the 1970's. History never exactly repeats itself and though I think they know it, they still expect a similar climate.

 

There is a prior anology which resembles today (more or less) but most people are not aware of it or do not believe it can happen because of the expanded influence of the government in the economy. What is it? It is 1929.

 

The country is (as a whole) much wealthier than it was back then but also in many ways a lot more vulnerable and this is due to the unprecendented credit bubble. A substantial number of people are ALREADY broke NOW even though the economic contraction has not officially started. And there are many more who are not broke (yet) but they have few financial resources available to them, especially in liquid form. This makes them particularly vulnerable to a job loss and further restrictions in credit availability. This is especially true since we have a NEGATIVE personal savings rate.

 

The credit crunch to date has been limited to selective sectors of the economy such as housing but if it spreads, then it is entirely likely (certain in my opinion) that most or all asset classes (including our coin collections) will have the hot air removed from them as credit contracts just as they were pumped up as credit was extended. If this does happen, then even many who are in relatively good shape now could find their supposed harbors of safety collapsing around them. The best example is the debt instruments which house a large part of our savings. Though open market prices always decline first, downgrades and defaults will occur later as we are seeing now in some areas.

 

On the subject of stocks, there will always be some companies worth buying but I believe that the supposed "low" P/E ratios today are a trap. Earnings are high and above historical average but that is substantially due to the credit bubble as well though some of it is due to increased productivity. Its like an athlete on steroids. These earnings have only been sustained because many of their customers (especially in America) have been able to "afford" their products by increasing their debt. With such low savings, profits will collapse if credit availability is further restricted or even not restored to previous levels. We've seen it so far in housing, housing related sectors, the financial services industry and even the auto industry.

 

No doubt the government, as evidenced by the Fed's actions to date and the pending "stimulus" plan, will act just like Japan did in the 1980's to forestall and reverse any economic contraction. But these are not preventive measures; only postponement.

 

Whether I am wrong now and the government suceeds temporarily, there is no free lunch. All debts must be eventually repaid even if by inflation or default and all bad decisions must suffer their consequnces. And since this country has been living beyond its means for a long time, there are many to account for. Whether this is through inflation as most expect or by deflation as I do, the end result will still be a decline in living standards for a large number or majority of Americans. The primary difference will be how we as individuals are positioned financially and how government policy selects the winners and losers.

[BULLY]

On the subject of stocks, there will always be some companies worth buying but I believe that the supposed "low" P/E ratios today are a trap. Earnings are high and above historical average but that is substantially due to the credit bubble as well though some of it is due to increased productivity. Its like an athlete on steroids. These earnings have only been sustained because many of their customers (especially in America) have been able to "afford" their products by increasing their debt. With such low savings, profits will collapse if credit availability is further restricted or even not restored to previous levels. We've seen it so far in housing, housing related sectors, the financial services industry and even the auto industry.

 

This is part of why I like stocks of companies that are items that people NEED or even if they don't "need" will likely buy, even in times of trouble. It's worthy of note that many of these U.S. companies earn much of their revenue overseas, so you get foreign exposure even by "buying American":

 

 

1. Pfizer (largest drug company in the world). Baby boomers are aging, and lets face it, medication is not generally considered a luxury item. With the Medicare Part D plan (don't get me started) there is a WHOLE NEW WORLD of money flowing toward drug companies.

 

2. General Electric: Who doesn't need a light bulb? Heck, they've got everything from bulbs to jet engines to water desalinization plants to clean energy products - a HOT TOPIC these days. A company with a huge worldwide presence.

 

3. Colgate Palmolive: Who doesn't need toothpaste, tooth brushes, dish soap, and other detergent? Let's not forget their pet food (Science Diet) where Americans spend a fortune annually. This is another company with a global presence

 

4. Proctor & Gamble: Their consumer products list is incredible, from toothpaste, to diapers, which are in every "family" household one can imagine. They too make a fortune in pet foods, Iams! P & G also has some snack foods to their menu such as Pringles and other items. Another global leader, with profits rolling in from around the globe.

 

5. Johnson & Johnson: Not only consumer disposables like the inevitable Band Aid, but medicines like a critical blockbuster migraine (and seizure medication) Topamax, as well as their drug-coated stents, for heart procedures. Their consistent earnings are impressive.

 

6. PepsiCo: A dominant market force, in the US and globally. Not just soda, but juices, and let's not forget bottled water, a HUGE money maker, and Americans drink it like, well, WATER! Along with this, PepsiCo has FritoLay, and Americans love their chips, and will tend to buy them, recession or not. Further, there are it's "performance drinks" such as Gatorade and it's spin-offs. Let us not forget their acquisition of Quaker Oats, and all that entails. It makes them a global powerhouse to be reckoned with.

 

7. Coca Cola: Between PepsiCo and Coca Cola, the two dominate the world's soft drink market. Coke has, in addition to it's soda, the Minute Maid juice brands, Dasani Water to capture the bottled water drinkers, and it's global marketing is substantial, and growing exponentially.

 

Shall I continue?

 

All these sorts of items that people will buy, debt be damned, recession or not -- it's not like a big screen TV, it's not luxury goods, it is the stuff you need, or the stuff you just have, day to day -- and those, IMHO, make for solid stock performers.

 

CAVEAT: I am not a financial advisor of any kind, and my opinions should no be construed as investment advice.

[BillJones]

Gold prices – justified or a bubble?

 

It’s a bit of both. At the moment they are justified because the weakness of the dollar has encouraged more than a few people to put their assets in precious metals. The bubble part comes when things calm down and gold settles back to lower levels. It will probably never be $300 an ounce again, but with inflation, the buying power represented by the lower gold prices will probably be that in real dollar terms.

 

[World Colonial]

I understand what you are saying, but in a bear market which I believe we are in (though just as with the economy, not officially recognized), these stocks will still fall and if my deflationary outlook is correct, many or all of them will fall substantially. Even if their earnings do not fall, their P/E ratios will contract.

 

Of the list that you mentioned, Pfizer is the only one that I consider reasonably priced though I have not paid attention to the others. And it is the only stock I have owned recently. It is already down 50% from its all time high of 46, so the downside is much more limited and with a dividend yield of over 5%, it provides a reasonable return just for holding it.

 

A company like GE is what I would describe a success in financial engineering (in my opinion) and I would be surprised if GE Capital is not absolutely hammered by the credit crunch if it gets worse as I expect. I do not believe that their AAA credit rating is justified either.

 

On the other companies, they produce basic necessities but are still vulnerable to substitution to cheaper brands. Though I cannot speak for these companies, there are many others who have financial time bombs that are waiting to go off that most us are not aware of. Most of these companies are those that have extended credit to their customers (mainly consumer installment credit which does not apply to these) but others also own the toxic waste as "investments" which will lose a lot of value if the credit deterioration continues. Many others have derivatives that will blow up when their counterparties default or the market moves against them. P&G was one such company back in 1994.

[jackson64]

I was going to mention also what world colonial alluded to.....numbers 3,4,5,6, & 7 of the "safe" stocks are far from companies that produce "needs"...if we get into serious financial problems for large groups of Americans...items like Pepsis and chips get replaced with tap water, iced tea and concentrated juice mix....porterhouses get replaced by flank steak and boneless chicken breasts get replaced by whole chickens....

 

Name brand products will take huge hits with tight budgeted consumers...I mean, Safeway brand toothpaste for $2 or Colgate/Crest for $4.50?...that $2.50 could be spent on 'Select Shampoo"....

 

maybe producers of non-name brand products will be the companies to invest in...just my