odin

Gold Doesn’t Care If It’s IN-flation or DE-flation

No arguments here. But how stable is that demand? People rarely trade in and out of jewelry, whereas people trade in and out of ETFs daily.

My point is that the demand you see is a "hot" flow. You are seeing retail buying, Paulson & crowd buying: that demand could suddenly become supply. There was huge demand and rapid appreciation in real estate just a few years ago (and the transaction costs in trading real estate are MUCH higher). Follow the gold price spike in the Jan 80 -- the buyers at the top have yet to break even in real terms (and are barely up in nominal terms).

My point is not that gold shouldnt be bought for investment (as a small part of a overall well-diversified portfolio) or that it cant be traded over the short-term. SImply that if you are advising that it should replace income-generating assets in your portfolio, which I hope form the significant portion of any portfolio, with the expectation of multi-bagger gains, you are likely to be disappointed.


On Jun 24 02:34 PM Jeff Nielson wrote:

> Odin, investment demand has just ZOOMED past jewelry demand - in
> just TWO quarters.
>
> Q1 for 2009 data is now available on the World Gold Council site,
> and investment demand exceeded jewelry demand by 80%. Jewelry demand
> is now irrelevant to the gold market.

Gold Doesn’t Care If It’s IN-flation or DE-flation

Over the long-term, I am bullish on gold and believe it has a valid place in a portfolio.

Also agreed that it is hugely underrepresented in investment portfolios. However, one must be aware that jewelry demand (which forms a significant portion of overall gold demand every year) is inversely proportional to gold price. If you see gold buying in China, India and the Middle East, it is highly elastic and tapers off during price spikes. Furthermore, looking at the rise in investment demand, a great deal of demand is coming from the ETFs (GLD bullion holding stands at over 1.1K tonnes up 83% for the year). The majority of GLD holders are retail investors and the fast money crowd (HFs). That is not stable demand -- the sentiments there could change on a drop of a hat.

The biggest risks to gold is economic growth and stability. While we might trade around our opinions there, I wouldnt want to bet against it long-term. In other words, other than insurance (a low/mid single-digit %age of portfolio), it would not be part of my long-term portfolio. Trading opportunities do come along from time to time, but I bear no illusion as to gold saving my wealth during rampant hyperinflation (such "revolutionary" periods change too many variables).