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0 pointsdragontamer13y ago0 comments

"What is certainly true is that Gold is a very good long-term store of value, and the prices of Gold relative to other things, such as a loaf of bread, a barrel of oil, a parcel of land are quite stable over a long period of time."

Wanna take a bet on that?

http://www.macrotrends.org/1340/gold-vs-the-cpi-historical-c...

Gold is out there, sometimes swinging by 1,700% over a decade... while the CPI doesn't change any more than ~100% / decade.

Dollars (and investments measured in dollars: ie Inflation-protected Bonds like TIPS) retain their value better than Gold, while providing a more stable platform. A 10-year note at even 2% offers you 21% growth over 10 years... much better than the long "valleys" that Gold investments suffered across the last century. (And with historic rates sometimes hitting 14.56%, it was possible for 10-year notes to hit 370% growth over 10 years).

Gold doesn't grow in value in the long term. And as shown in Gold Volatility Index, Gold is also a very unstable investment historically.

In fact, Gold's volatility today is the same as the S&P 500 Index.

http://finance.yahoo.com/q?s=^VIX http://finance.yahoo.com/q?s=^GVZ

So it is just as volatile as stocks... while offering poor gains historically. Neither the conservative nor aggressive investor would want this kind of investment. That makes gold a "piss poor" investment in my books.

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cmccabe13y ago· 2 in thread

Pretty much every big economy is trying to inflate away its debts. The Bank of England recently revised their inflation target upwards. Now Japan's central bank is talking about doing the same thing. As far as the US goes: I've got two words for you: quantitative easing.

Meanwhile, most consumer price indices don't include the things which increase in price the most, like fuel and food. So the inflation numbers you're seeing are already artificially low.

In this kind of environment, it seems pretty likely that gold has further to climb.

Also, most stocks these days don't give dividends, which makes them pretty much equivalent to gold from an investor's perspective. Greater fool and all that.

Investing in just one thing is dumb, of course. But not investing in commodities and gold at all seems equally dumb.

dragontamerOP13y ago

Get your facts straight. Have you ever read a CPI report? Do you even know how the CPI is calculated? Here's the list of CPI weights.

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiri2010.txt

Food: 14.792% Housing: 41.460% Fuel: 5.079% Energy (included inside of "housing category"): 5.096%

If you're curious, you can further subdivide that into milk and eggs. But the list becomes way too unwieldy at that point. The averages are then computed using a geometric mean.

Also, Bond bankers are willing to accept a loss on TIPS, because a fair number of them are betting the opposite of inflation: the potential of deflation between 2008 and 2012.

http://www.nber.org/papers/w14701 http://www.frbatlanta.org/research/inflationproject/dp/

When big banks were buying up US Treasuries constantly because they're worried about deflation... to the point where some bonds are offering a negative return... the switch of Monetary Policy that favors inflation is the obvious move. Notice: Gold Dropped in value since last year, while big investors continue to run towards the safety of US Treasuries... pushing yields to absolute lows. Why? Because during 2012, the major banks and investors were worried about deflation risk.

Buying commodities and gold when there is considerable deflation risk is dumb.

cmccabe13y ago

According to wikipedia: "The core CPI index excludes goods with high price volatility, such as food and energy. This measure of core inflation systematically excludes food and energy prices because, historically, they have been highly volatile and non-systemic. More specifically, food and energy prices are widely thought to be subject to large changes that often fail to persist and do not represent relative price changes."

The Core CPI is used to calculate "Core Inflation," which is the main thing that the Federal Reserve tries to monitor. See http://en.wikipedia.org/wiki/Core_inflation. So although there are alternative CPIs which do include food and energy prices, they are not as important to the people making monetary policy in the United States.

I'm not really sure what you're trying to show with that graph of deflation probabilities. If I'm reading it right, the probability of deflation through 2017 is currently 0%. Since the year is currently 2013, the "probability of deflation between 2008 and 2012" is also 0%, since I just lived through those years, and... it didn't happen.

The reason why people were buying treasury bonds in 2008-2012 is because the rest of the economy was imploding and they wanted a safe port in the storm. I lived through those years and so did you. You ought to know this already.

I don't really know what else to say. If you think it's a good idea to buy a bunch of treasury bonds with super-low interest rates in 2013, knock yourself out! I think anyone with an ounce of sense can see that our government is going to inflate away its debts over the next few years. In the meantime, you'll be helping to keep USGov in the black, so... thanks, I guess.

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