When Gold Goes Up

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“Gold is saying something,” writes Bloomberg columnist Mark Gilbert.

What’s it saying? Nobody knows. Well, at least nobody who works at The Daily Reckoning. We listen. We hear. But we still don’t know what the hell gold is talking about. The yellow metal is speaking in riddles.

Yesterday, gold spoke again. It rose $4 to a new record high of $1,296. Tomorrow, it will probably hit yet another record – possibly over $1,300.

In the conventional wisdom, gold is telling us to watch out. Inflation is coming. Either the regular kind…the kind that comes with “growth”…or the kind that comes with the “hyper” modifier. Almost everyone likes the regular kind. Almost no one likes the hyper kind.

But being the contrary coots that we are, we’re inclined to think that there will be many a slip between the cup of $1,300 gold and the puckered lips of gently rising inflation levels.

Watch out, dear reader, watch out.

Not that we’re dissing gold or sassing the goldbugs. Not at all. We think it’s going to $1,500…and then to $3,000. But next week?

Don’t know. We have to keep listening…trying to interpret the whispers.

There’s something all together too obvious and too easy about the gold market now. It just goes up. Year after year. Maybe it’s a trap.

In 2000, there was a crash in dot.coms. The whole magic of the tech bubble suddenly disappeared. And guess what? Gold went up.

In 2001, the War on Terror began. And guess what? Gold went up again.

And again in 2002. And 2003. And 2004.

By 2005, the world economy was in the throes of a massive financial bubble. Everything was going up. Gold went up too.

In 2006, the US had a major housing bubble on its hands. Gold went up.

In 2007, the housing bubble started to lose air. Gold went up.

In 2008, Wall Street stared into the abyss. Lehman Bros. went broke. The feds took over housing finance, auto-making, insurance, commercial lending…and gold went up.

In 2009, the feds went all out to try to engineer a recovery. The Fed ballooned its balance sheet by $1.2 trillion. The federal budget went into deficit by nearly one and a half trillion. Still, gold went up.

And what’s this? The recession officially ended more than a year ago. Housing and unemployment are still limping. De-leveraging is still underway (David Rosenberg calls it a “depression”)…and go figure. Gold is still going up.

Is there anything that can stop gold from going up?

We don’t know. But many smart people are coming to the conclusion that they can’t lose with gold. If the economy recovers…gold is a cinch to go up along with inflation. If the economy falters…gold will go up when the Fed comes to the rescue with more printing press money.

And then, there are the Chinese. God knows they like gold. And they don’t have much of it. If they’re behind this gold market it could last for another 20 years (see below).

So gold is a “can’t lose” investment.

We like gold. But we don’t like “can’t lose” investments. What to do? More below…

How we wish we had more thoughts!

We’re down here in Florida…overlooking the choppy Atlantic Ocean. The sky is gray. The wind is pushing the palm leaves up against our condo. The waves break …the sea is white…and green… This is not a place for thoughts…

Delray Beach seems a little slow. Then again, it is off-season.

But wherever we go we ask ourselves… what do people do here? What do they think? What do they want?

Along Atlantic Ave. they seem to want to sit in cafes and drink coffee. There are the old people…broken down by time and worry. And there are the young, tanned and toned…from surfing…running on the beach…and lifting weights.

The young probably want a life…but what do the older people want? We see couples sitting together…sometimes walking along, hand in hand. What are they looking for? Some time together…a cozy, soft life after a career of hard work? Do they want to relax? Enjoy life?

Maybe… But what we see is people looking for something to do with their time…with their thoughts…and with their lives.

A man of 55 can reasonably expect to live another 20 years. What is he going to do? Come down here. Get a motorcycle. Ride up Atlantic Ave. and stop for a coke? Or a beer? Go to the sports bar and watch a game? Make plans to get together for a barbecue on the weekend?

There is an air of empty desperation about the place. Of people who don’t quite know what to do with themselves…except decorate their houses…have coffee…talk…talk…talk.

What do they talk about? Their children? Their lawn maintenance crew? Their hairstylists? Kant…and objective correlatives? Or housing prices?

Sociologists and other quacks have probably noticed. They’ve probably written papers on it…on what happens to people after they’ve cut themselves off from work…and the responsibilities of family.

In the extended families of yesteryear, there was always work to do… It never stopped. Gardens needed to be tended. Meals had to be prepared. Animals had to be fed. Children needed to be minded…taught…and prepared for the world. The work provided an easy answer to the eternal question: what am I supposed to do?

But in a life of leisure…what are you supposed to do? What is the purpose of it…only idle entertainment?

Perhaps, people down here cling to the beach the way an old priest clings to the cross. It gives meaning…sense…to their lives. It signals that they are on vacation – permanently. They don’t have to answer the question at all. What am I supposed to do? Nothing. I’m on vacation.

Regards,

Bill Bonner,
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. So gold is a “can’t lose” investment.

    We like gold. But we don’t like “can’t lose” investments. What to do?

    “There’s something all together too obvious and too easy about the gold market now. It just goes up. Year after year. Maybe it’s a trap.”

    The same could be said of the property market.. it has had a great run over the decades.. many have made money, many are still jumping on the property train thinking they will make money.. Is the money making machine that is property broken or stalled for now?

    A couple of years ago, it was the Stock Market reaching new heights and we saw what happened there too..

    Gold will ultmately be the same it will rise until it falls…
    Gold will continue to rise until the volatility is sorted and stability returns..
    One can not time the market, though some here like to ask “when”.. there is no “when” only “why”..

    Stillgotshoeson
    September 27, 2010
    Reply
  2. Comment by Stillgotshoeson on 27 September 2010: “…some here like to ask “when”.. there is no “when” only “why”..”

    Comment by Stillgotshoeson on 27 February 2010:

    “@Christina When the market crashes, I will continue to hold my positions and ride it out. When gold does rally, the shares in those gold mining companies will default.”

    Wise words of wisdom from the fella whose main qualification is a Merit Certificate from The Great Unshod, for services as yet explained… . ;)

    Reply
  3. Trying to twist my words to prove a point Biker…

    It is quite simple.. but a man of your supreme intelligence has a tendency to over complicate a simple matter..

    You can not time “WHEN” a market crashes so there is no “WHEN” you can only relate to “WHY” a market will crash.. be it the housing market, gold market or share market..

    Will YOU sell in a housing downturn or will you ride it out?

    What suits you may not suit others..

    I fully expect a downturn in the stock market again, in fact I am setting my portfolio in anticipation of it… I will hold those stocks during the correction and look to rebalanace coming out of the downturn..

    Stillgotshoeson
    September 27, 2010
    Reply
  4. Shoes: “I fully expect a downturn in the stock market again…”

    But… but… those fabulou$ projection$ you gave us back in February….
    Those amazing numbers!!

    And your claim that “_When_ I buy a house, I’ll pay cash…”

    A brilliant wordsmith like you backing out of those fanta$tic gain$?

    Surely not… . ;)

    (Missus was right. Told her life just wasn’t the same now that Shoes wasn’t talking to me. “Hit him with some bearsh*t and he’ll come right back at you!” _Friends_ on speaking terms again. Love it!~ :D )

    Reply
  5. Comment by Biker on 27 September 2010:

    Shoes: “I fully expect a downturn in the stock market again…”

    But… but… those fabulou$ projection$ you gave us back in February….
    Those amazing numbers!! Check the archives… You will see (as I am sure you have already but seem to omit the bits that work against you…) That I stated then that I expect both a correction in both property and stock markets.. but I think you fail to realise.. or seem to omit that individual shares are not the market… yes the market went down over 50% but some shares gave me (and others) fantastic returns.. Prperty will be the same some cities/suburbs are going to be hit harder than others…

    And your claim that “_When_ I buy a house, I’ll pay cash…”

    No claim… A fact..

    A brilliant wordsmith like you backing out of those fanta$tic gain$?

    Brilliant wordsmith? Thought I was an illiterate…

    Surely not… . ;)

    (Missus was right. Told her life just wasn’t the same now that Shoes wasn’t talking to me. “Hit him with some bearsh*t and he’ll come right back at you!” _Friends_ on speaking terms again. Love it!~ :D )

    Sure friends… When I am in WA I will come visit… Can I park in your Drive or do I have to park on the street.. Or does the No cars in Drive and visitors to park on street only apply to your tenants?

    Tell your wife she is mistaken though… baiting does not work, as you are well aware from your previous attempts.. if I wish to communicate with you I will… If I choose not to I won’t..

    For now, I now choose not to.. Feel free to “bait” me again…

    Stillgotshoeson
    September 27, 2010
    Reply
  6. * Heartbroken *

    * But I think those fantastic figures you cited are definitely worth review. (What were you on?) :D

    Reply
  7. OK, here’s a starter:

    “Gold Skyrockets to $6000 an Ounce $498000 (I think $2400 or so)

    My guess on the share price is right.. $970000… .”

    Not bad. Your guess made you nearly a million dollars.
    Not a bad guess… and all you did was watch fireworks… !~ ;)

    Reply
  8. I imagine this economic forecasting is something you picked up from The Shoeless One? Is this the CYC* method? Seems highly effective and I’m surprised more folk don’t employ it to buy homes with cash… . ;)

    * Were you perhaps a poultry farmer prior to emigrating, Shoes?

    Reply
  9. I prefer paying cash for my houses. But I was brought up to have some very old fashioned ideas about debt. And must admit I have never been especially successful financially. At least partially as result of those ideas perhaps. But also because I’m pretty stupid! :)

    Then again I think it might have been Buffett who said something like Ignorance and leverage is a dangerous combination. So maybe it is just as well I have pretty much played safe throughout my life.

    Reply
  10. I have recently paid off my home Ned and I am with you. Not keen (heh Keen) at all – in fact never again do I want to have a mortgage, it is a good feeling to be debt free :)

    Reply
  11. “I have recently paid off my home” – Congrats Don! It’s a big one to get laid to bed alright. As a lot point out, there may or may not be better investments going forward. But a paid off one sounds like a handy thing to have regardless.

    Reply
  12. Well, renting does allow a punter to gamble… and, as they say, no guts, no glory. Gotta admire these blokes who can follow a hunch and go for broke! ;)

    Reply
  13. “no guts, no glory” – “no guts, no gory” is my thought for some reason? :)

    But yep, either way, I’m expecting a difficult investing environment going forward. There is no question that they do happen periodically!

    Reply
  14. One superannuation question I’d like to know the answer to Biker, is if I can access that $160K odd on a TTR a) at the start of the financial year year that I turn 55 or b) only after I actually do turn 55. I’m getting a bit tired of this ‘delayed gratification’ stuff and want to spend my loot! :)

    Wonder if DRA has that superannuation specialist on board yet?

    Reply
  15. “I’m expecting a difficult investing environment going forward.”

    We’re not, Ned. Tenants are paying off all but two properties (it’s close, though) and our best rentals are providing pleasing returns. We figured recently that even with vacant blocks, it costs us just $14 per week to hold a very large portfolio… and then we get two very nice refund cheques each October. Further analysis of our rentals indicates that we had two years (’08/’09) where rents rose 19% (or 9.5% each year.)
    We believe that our rents in ’11 and ’12 may eclipse these highs…
    in WA, anyway… .

    “…if I can access that $160K odd on a TTR a) at the start of the financial year year that I turn 55 or b) only after I actually do turn 55….”

    You must actually _be_ 55 to access a tax-free TTR, Ned. Question from downstairs: “Have you technically retired, Ned?” We think you can pull $160K tax-free at 55, anyway, if you’re retired. Mind you, you’d then pay tax on anything it earned… . But remember you can’t get a TTR (transition-to-retirement) if you’re actually _retired_.

    We suspect that our offset strategy, applied to property, beats any tax-free benefit Super may provide us, until 2012, anyway. After that, CGT issues begin to affect the $900K we can roll back into Super every three years.

    By 10th October, we hope to have a clear(er) picture of our situation. Some of what we learn may be helpful, not just to you, but to others looking at retirement… . Best to run our ‘answers’ by your own accountant. Our situation is fairly unique… and may not apply to others…

    Reply
  16. “Best to run our ‘answers’ by your own accountant” – For sure Biker. The answer on the a) and b) alternatives was informative though. But raised another question as these things often do I guess. Ta anyway though of course!

    DRA might be better advised to stick to making guesses on whether housing and stocks and bullion might go up or down? As superannuation seems REALLY complex! :)

    Reply
  17. “…superannuation seems REALLY complex! :) ”

    It’s highly individual, Ned. I think that’s the real issue.
    Our two situations here are radically different, even though there’s just five years between us. In 2011, we may need to look at the whole issue of Super-splitting, which has never previously been worth analysis.

    We’ve just reviewed an assessment an FA had done for us back in 2000.
    It is _so_ way off we can’t believe it. Just goes to show how much can change in a decade. :D

    Reply
  18. Even the Are you retired or aren’t you retired question seems to be a tricky one? My answer would simply be that I’d be extremely happy to never work again. But if I figured it was necessary then I’d give it a shot. Plus if a spot of work came my way and I didn’t have anything else particularly amusing to do at the time and felt it wasn’t going to especially put me out, then I’d adopt the attitude of Heck, having a few extra pesos can’t hurt.

    Work, the curse of the drinking man! :)

    Reply
  19. “Work, the curse of the drinking man! :) ”

    The whole ‘work’ issue is an extremely grey area. It appears to us that there’s a high(er) degree of flexibility of interpretation, perhaps even ‘greyer’ after the GFC hit.

    I’ve considered becoming a gardener/caretaker of our rentals, but there are pros (perks) and cons (tax issues) involved. The former could lull one into believing it is worthwhile (short term); while the long-term tax implications of the latter might very quickly erase all benefit!

    As yet, we haven’t framed this consideration into key questions, mainly because our travels might make (any) work difficult.

    Work, the curse of a rolling stone!~ :D

    Reply
  20. Wow i really connected with your comments about people boding i look around at a lot of people my age these days and they either know 100% what they want, or as with some of my other friends they look almost lost. I am only 24 and i look around and think i can already afford 98% of what i want to own with just one year of saving. I am about to move away from Australia for a few years and for only a small sum of money (20K Euro) i can set up an entirely new life. I am searching for a sense of community at the moment. Let’s hope i can find it in the German country side because i sure as hell can’t find it in Sydney. The upside i get to work in one of the most advanced engineering test laboratories in the world, i just hope i can show those Germans what Australians are capable of, I always have had a deep respect for their attention to detail (Last time I was in Germany I saw them laser levelling a section of concrete they were pouring on the Autobahn!!).

    Auf Wiedersehen!! Bis Bald

    Reply
  21. Superannuation- Can’t access unltil 55 and “permanently retired”, or 60 and “retired” or 65. The 55 thing is on a sliding scale- in a few years it will be 56 and continue rising.
    On the “retired issue” – super funds neither care nor have any inclination to know whether or not this is true, provided you do not blatantly fib. I.e., tell them you are retired and make sure that you don’t still have a regular stream of employer contributions making thier way into the fund at the time. If you recommence working two months later they can’t do anything, and probably don’t want to. The ATO may care, but that is a totally different kettle of fish.

    Reply
  22. Thanks K. Thanks Biker. Yes Sparks, I can understand a young bloke asking himself if life might not have better things in store for him than what some Australian cities seem to be offering right now. Viel Gluck!

    Reply
  23. Comment by k on 28 September 2010:

    Superannuation- Can’t access until 55 and “permanently retired”,

    You can get your super prior to the age of 55..

    One of the conditions for the release of your super is leaving the workforce with no intention of working again.. age is irrelevant for this condition.

    Tax Free Component $XX,XXX.XX The full amount is tax free
    Taxable Component – taxed element $XXX,XXX.XX
    If paid after you reach age 60, the full amount of the taxable component is tax free.
    If paid when you are under your preservation age, tax is 20% + Medicare Levy.
    If paid when you are aged between your preservation age and age 59 (inclusive), the following tax will apply:

    * First $160,000 – tax free
    * Balance 15% + Medicare Levy

    Total Benefit Amount $XXX,XXX.XX

    If paid when you are under your preservation age, tax is 20% + Medicare Levy.
    Retiring prior to 55 allows you to access your super with above tax effect…
    Commencing work again may (will?) probably bring the ATO knocking at you door as stated above.. However as far as your super is concerned ceasing work with no intention to work again is a condition of release for your super.

    Stillgotshoeson
    September 28, 2010
    Reply
  24. “If paid when you are under your preservation age, tax is 20% + Medicare Levy.”

    You gave them 20%+? :D

    Reply
  25. _When_ was that?!~

    (There is no ‘when’, only ‘why’??!~)

    No answer expected, son. ;)

    Reply

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