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Jeffrey Dow Jones  

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  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Yeah, this falls into the "future events" bucket of outcomes. If there is a massive buyer of gold, that could obviously influence demand and by extension, price. I just can't say for sure if that'll happen. It may. It may be a reason why I might ultimately be wrong.

    Thanks for the comment.
    Jun 2, 2014. 10:36 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Gold is super easy to analyze in this type of framework. Interest rates are much more complicated. There are a billion different inputs. I wouldn't have a clue how to build a model like this for bonds!
    Jun 2, 2014. 10:35 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    They aren't set by inflation. Inflation is the trend.
    Jun 2, 2014. 10:34 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    GREAT QUESTION! Glad you asked...

    Relative to gold, I think the miners are dramatically undervalued. Plus, over long windows of time the miners are much, much better investments than gold. It's not even close. In 2011 Barrick had outperformed gold since 1985 by a factor of nearly FIVE! Even after a 70% correction, Barrick has still destroyed gold in terms of total return.

    Also, to the guy that says my view is that it's going to $800, that's not exactly my view. Not technically. I think that's fair value for gold, but I don't think it'll get there right away. I think it chops around for a while.

    As it chops around in a range, I think the gold miners stabilize and the value relative to gold improves. Long miners over gold could be a gigantic trade over the next few years.

    I'm also long gold, too. I believe that because of it's lack of correlation with other asset classes, it has value to portfolio managers. Proper portfolio management isn't about guessing which assets will go up and which will go down. It's about assembling the right mix and riding through full economic cycles.
    Jun 2, 2014. 10:33 PM | 2 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    "It is in the best interests of the western central banks to keep gold as low as possible."

    Why do western central banks want to keep gold low?
    Jun 2, 2014. 10:27 PM | 1 Like Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Right, and this is one of the points I tried to make above. If it's monetary inflation that matters for gold, then it's also monetary inflation that matters for other real assets Eg. real estate.

    Is real estate massively undervalued by 40% or more? Are other durable consumer goods? Or what about foreign currencies -- does the Canadian Dollar need to double?
    Jun 2, 2014. 10:26 PM | 2 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Why would gold track the price of oil? They're both denominated in dollars, of course. But what does one have to do with the other?
    Jun 2, 2014. 10:24 PM | Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    "Can you give me some examples?"

    Yes, the billion prices project is a really good example. That incorporates all sorts of consumer goods.

    I don't know why investors make the repeated mistake of assuming that what they see in their own backyards is indicative of the system at large.

    Also:

    Healthcare costs haven't tripled since 2000.
    Electricity costs haven't tripled since 2000.
    Rent costs haven't tripled since 2000.
    Food costs haven't tripled since 2000.
    Staples costs haven't tripled since 2000.
    Jun 2, 2014. 10:20 PM | 5 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    AISC is sort of a pointless number. It makes a lot of really aggressive assumptions about the gold market, and it can be really misleading during times like these. Cash cost is a better metric to use in an objective sense, but obviously, I understand why bulls would want to use it.

    AISC isn't GAAP for a reason.
    Jun 2, 2014. 10:16 PM | 1 Like Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Thanks for the comment.

    a) YES! I covered this in one of those other pieces, the one about better strategies for investing in gold. There is definitely an option-like quality associated with gold. It's very expensive, too. You can use a basic trend-following approach with gold and earn way higher returns than buying and holding gold (and preserve most of that option value as well).

    b) The real rate point is really interesting. Real rates have a very distortive effect on assets. Theoretically, an environment where real rates are negative is the one environment where gold should outperform inflation. The problem is that gold is so volatile relative to CPI that even a window of 3-5 years is too short for this.
    Jun 2, 2014. 08:23 PM | 1 Like Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    1. I don't think you can write the same article article for oil. We consume oil after we extract it. This makes the PRODUCTION supply/demand balance much more important and it's a legitimate reason why something like oil can appreciate at a rate much greater than inflation.

    2. As for future inflation, the 10yr TIPS/Treasury spread is like 2%. So, no, the market doesn't think that inflation is coming. (Which is really weird given the first quarter's 5%+ CPI!)
    Jun 2, 2014. 08:20 PM | 1 Like Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    I think inflation IS a good trend basis for gold. Justifying a price of $2,000/oz may require saying that it isn't.

    The % of global assets logic seems really arbitrary. Maybe explain more about why that's a good argument?
    Jun 2, 2014. 08:17 PM | 2 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    This is a very common objection. Check out some of the other threads in these articles.

    Basically: systemic inflation involves more than just food prices.

    Also, lots of things haven't gone up 3x since 2000. There are tons of services that have increased relatively little in price, or have dropped.
    Jun 2, 2014. 08:15 PM | 2 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Very interesting! I hadn't thought of this.

    That's another very "personal" investment as well, one where more than just our dollars are at stake.
    Jun 2, 2014. 08:12 PM | 2 Likes Like |Link to Comment
  • Maybe I'm Wrong - Justifying $2,000+ Gold [View article]
    Thanks!

    I don't have a clue what'll happen with gold. But I also think that if someone wants to push back against my original thesis and model, they need to have some sort of robust model themselves.

    This is as close as I could come, but it involves making some really uncomfortable assumptions. Ultimately I'm not willing to do it. Some people may, though.
    Jun 2, 2014. 08:11 PM | 2 Likes Like |Link to Comment
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