Planning to buy gold, but when???

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metametal's picture
metametal
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Joined: Jul 12 2011
Posts: 25
Planning to buy gold, but when???

I aim to own a healthy position in gold by 2016.  The burning question:  Is now a good time to buy in?

So far in my admittedly amateurish thinking, the answer is: not yet.

My reasoning:

1) I don't want to bet against a global financial crash in the next 24-36 months now that the Euro zone is unraveling.  A 2008-style (or worse) crash could involve a liquidity crunch causing commodities, including gold, to take a big hit.

2) I don't want to bet against the dollar in the short term.  The euro, the yen, and the renminbi could all do worse, in which case the dollar may turn out to be the safe haven in terms of competing currencies.

3) I don't have confidence that gold owners won't panic in a general crisis.  Gold has little intrinsic value compared to other commodities like oil.  I fear that the urge to take profits could be very strong if the going gets tough and the gold bugs as a group get at all spooked.

4) I'm not particularly worried about the Fed causing inflation by "money printing" in the short term.  As I understand it, more near-term "easings" would merely  increase already bloated reserves in Fed member banks and  the bigger reserves would only be inflationary if there proved to be enough demand for new loans and enough velocity in the economy to turn those loans into intensive economic activity.

5) Corporations are sitting on mountains of cash because they don't see growth or business opportities.  The housing bubble has burst and banks are reining in credit to families that are mostly tapped out.  All of which argues for a no-growth or contracting economy.

6) A rapid deflation of the unprecedented global debt bubble could unlease deflationary pressures far beyond the Fed's capability to stimulate the economy with monetary policies.

7) The Fed's stimulus policies are failing and there seems to be little reason to believe that doubling the national debt one more time is the way to succeed, even if that approach were politically feasible, which appears doubtful

8) The demographic argument of Harry S. Dent seems compelling.  Baby boomers are retrenching in preparation for retirement and younger workers are having trouble forming new households and keeping their jobs.  Insofar as household consumption remains key, this argues for near-term deflation and strengthening of the dollar.

9) I personally don't have the stamina to buy and hold gold through a crash event that causes a huge hit to my initial investment, even if I'd expect to recover in the long run.

While I claim no skill at all in timing markets, it seems safer at this point to wait for gold to take a dive and lose much of its luster and popularity before I buy in.

The downside risk I'm willing to accept is missing the gold train altogether if the metal proves to increase steadily with no major reversals.

The other bet I'm willing to make is that the dollar won't be the first major currency to crash and burn.

Sorry for the length of this post.  I'd love to read other people's comments and criticisms.

 

 

Ken C's picture
Ken C
Status: Platinum Member (Offline)
Joined: Feb 13 2009
Posts: 753
Buy a little at a time on a regular basis.

If you believe that gold's long term outlook is positive then why not try to dollar cost average in and buy a little on a regular basis.

That way you don't completely miss the train if there is no big correction.

 

 

JAG's picture
JAG
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Posts: 2492
When to buy gold?

 2002, when nobody else wanted it. 

ao's picture
ao
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Posts: 2220
JAG wrote:  2002, when
JAG wrote:

 2002, when nobody else wanted it. 

Correction ... 2001.;-)

Tycer's picture
Tycer
Status: Platinum Member (Offline)
Joined: Apr 26 2009
Posts: 610
Don't buy any.

 All of your reasons for not buying are based on your feelings and perceptions.

Your belief system makes you a poor candidate to own PMs. 

If you want to challenge your beliefs, learn about the McAlvany's investments pyramid and buy a copy of the Rich Man, Poor Man book on PMs by Michael Maloney.

Then if you find your beliefs sufficiently challenged, perhaps dollar-cost-averaging is in order. Yesterday.

metametal's picture
metametal
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Joined: Jul 12 2011
Posts: 25
Thanks for the

Thanks for the response.Dollar cost averaging is an interesting possibility but I think I'll end up trying to time the market.   I know, crazy.  Wish me luck

ao's picture
ao
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Posts: 2220
dartboard in a casino
metametal wrote:

Thanks for the response.Dollar cost averaging is an interesting possibility but I think I'll end up trying to time the market.   I know, crazy.  Wish me luck

metametal,

Do you hear what you're saying here?  You want to try timing the market but you've already mistimed it by buying this late.  You want to hold a healthy position in gold by 2016 (over 4 years from now) by which time it'll probably be wise to be unwinding a healthy position in gold.  In addition, some of your other statements also suggest that you're setting yourself up for a disappointing investment outcome. 

If you read your statements, I think what you're asking for is validation for a course of action that you've planned to follow anyway even though it's not the wisest course of action.  Tycer gave some good advice.  Unfortunately, I'd give 10:1 odds that you're going to do what you planned to do originally, no matter what.  I hope I'm wrong. 

metametal's picture
metametal
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Joined: Jul 12 2011
Posts: 25
price point

Thanks, ao.  I'm a newbee here and can see that announcing a plan to use market timing strategy must sound foolish.  I certainly wouldn't be surprised at ultimately being crowned a fool, but I'd like to make the point that my own world view, such as it is, has evolved to the point where timing is the only game left in town.  I.e., I believe that buy-and-hold is a dead letter and that from here on out EVERY action (or inaction), when you look at it closely enough, must now come down to some kind of timing bet.  Obviously, one can no longer buy gold now at 2001 prices but, if  in 2011 I believe gold has long-term promise but significant short-term risks, then my current task is to determine a price point for most comfortably buying in.  Likewise, if I had bought gold in 2001, I would still have to decide when I would be most comfortable taking some or all of the profits. (Incidentally, I do have one small gold position that currently has a 100%+ paper gain).

Re dollar cost averaging, I don't see that it does much other than complicate one's portfolio and taxes.  One still has to have an exit strategy and one's results end up largely depending on the commodity's random price walk over time.

I agree with Chris's emphasis on making one's investment decisions based on one's (hopefully) informed beliefs.  Beyond that I believe one's strategies should probably be whatever lets one sleep most soundly at night.

 

ao's picture
ao
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Posts: 2220
being open to considering potential fallacy
metametal wrote:

Thanks, ao.  I'm a newbee here and can see that announcing a plan to use market timing strategy must sound foolish.  I certainly wouldn't be surprised at ultimately being crowned a fool, but I'd like to make the point that my own world view, such as it is, has evolved to the point where timing is the only game left in town.  I.e., I believe that buy-and-hold is a dead letter and that from here on out EVERY action (or inaction), when you look at it closely enough, must now come down to some kind of timing bet.  Obviously, one can no longer buy gold now at 2001 prices but, if  in 2011 I believe gold has long-term promise but significant short-term risks, then my current task is to determine a price point for most comfortably buying in.  Likewise, if I had bought gold in 2001, I would still have to decide when I would be most comfortable taking some or all of the profits. (Incidentally, I do have one small gold position that currently has a 100%+ paper gain).

Re dollar cost averaging, I don't see that it does much other than complicate one's portfolio and taxes.  One still has to have an exit strategy and one's results end up largely depending on the commodity's random price walk over time.

I agree with Chris's emphasis on making one's investment decisions based on one's (hopefully) informed beliefs.  Beyond that I believe one's strategies should probably be whatever lets one sleep most soundly at night.

 

metametal,

There's always some degree of timing involved with any investment.  I think you may want to clarify micro, meso, and macro timing.  Whatever, you buy, you're always buying and holding ... for some time interval.  If you're looking at shorter time intervals, the pros are always going to beat you and you will participate in enriching them.  Any success you have will be a pure crap shoot.  An entrance strategy based on luck is unlikely to be very successful.  The question is, what objective criteria (both qualitative and quantitative) will you use to select an entrance point.  That's what you need to define.  

Exit strategies are a whole other ballgame but I'd never enter a position without having a clearly defined exit strategy.  Again the exit strategy should have some substance to it and not be based on luck.  Practical considerations, however, may obviate theoretical decisions regarding exit strategies. 

As as an external observer removed from the emotional involvement of your situation, I can't help but notice the contradictory nature of another statement.  You comment on the "commodity's random price walk over time" yet you seem bent on pursuing a strategy at variance with random walk theory.

I could very well be mistaken but I just have the sense you really haven't investigated this issue thoroughly and seem to have your mind made up about your path of action.  It makes me wonder why you made your inquiry in the first place.

This isn't a perfect book by a long shot but it does give one a someideas of what to consider when making the decision you're faced with.

http://www.amazon.com/Gold-Trading-Boot-Camp-Commodities/dp/0471728004

Good deciding.

 

tictac1's picture
tictac1
Status: Silver Member (Offline)
Joined: Sep 25 2009
Posts: 175
Fundamentals?

Lots of good advice here, but it does not appear that our seeker will use any of it.

Couple of points you might consider, these will be listed per your numbers above-

3) Get to know some gold bugs.  I know quite a few, and there's no way these people are going to sell during a crash.  BUT, gold bugs represent a teeny tiny slice of who has metal, so I think their positions are moot.

4) I don't think you're paying attention.  We've already got price increases in food and building materials.  This of course varies by location.

If you're waiting for gold to take a major dive and go all in, you are about 10 years too late.  Look at the charts on Kitco.

I've been watching the metal markets very closely for about 4 years, and I've had very good results timing my averaged purchases.  You may not agree with my principles, but they have worked thus far.  They are-

Metals are manipulated, downward.

The market runs mostly on fear and short-sighted stupidity.

Dollar devaluation is a long-running and irreversable trend.

Media works in concert with government to exert control.

For example, the end of QE2 predictably caused a mini-bubble in gold, which could have been exploited.  The bubble popped and gave a little buying opportunity.  Right now, we're still seeing some anti-gold media, and central banks are increasing their buying.  Do you think the central banks are less informed than we are?

Like someone else said, if you're trying to beat the traders, forget it.  They have access to info and software you do not.  Plus, if you're buying REAL metal (which you should be), you'll notice that actual prices on the street can vary quite a bit from spot.  Typically, you'll want to wait as long as possible on a dip to buy, because dealers will increase their premiums during short drops, which has a flattening effect.

One last thought.  You mention gold vs. oil.  Yes, oil has practical value, but you cannot actually possess it.  Gold may not have intrinsic value (actually, nothing does) but you can hold it, and its record of value is thousands of years old.

Best of luck, and please let us know how you do!

 

 

dickd's picture
dickd
Status: Member (Offline)
Joined: Nov 2 2011
Posts: 14
When to buy gold?

I bought gold in 2000, 2001, and 2002 and I'm glad I did.  It's locked up and I have no intention of selling it.  I HOPE I never have to!

I also have a shotgun by the bed for protection from a break-in - again, I hope I never have to use it!

We have food in storage, supposedly good for 25 years, and I hope we never have to eat the stuff!

In the 1950's people built fallout shelters and prayed they would never use them.

In short, I don't think gold should be compared to equities which are bought with the hope of dividends or selling for capital gains.  Buy and hold is VERY long term when considering gold.  My gold is strictly to give us peace of mind that we have another way to protect our savings.  If it drops in dollar-value, I won't be worried since I have no intention of selling it anyway, rather, I'd buy more.  If the dollar crashes, I'll still have some value in my gold.

I bought at $300 10 years ago and when it went over $1000 I wondered who would ever buy it!  Tonight I just bought more at $1800 since I think it will go to $2500 next year.  I sure wish I would have bought more at $300 instead of buying Enron!

good luck with your investments!

dick

metametal's picture
metametal
Status: Bronze Member (Offline)
Joined: Jul 12 2011
Posts: 25
Still working on it

Thanks to all for your thoughtful advice and kind wishes.  I'm an intermittent visitor to this site and don't always have a handle on what ideas have already been thrashed through here, so I appreciate your tolerance of my ongoing newbee-ness.

I'm continuing to wrestle with the dollar vs. gold in the mid-term future (2012-2015).  For what it's worth, my gut keeps telling me that the dollar is going to be the safe haven until gold finally takes that role some time after 2015.  So for now I'm staying in cash but will look for opportunities at certain buy-in points.  I have no rational reason not to do dollar-cost averaging for gold as some of you suggest, but for some reason have no appetite for that.  Not sure what else to say.

At this point I'm most interested in hearing arguments why the U.S. dollar should not be considered the safe haven in the near term.  As I said in my first post, I believe the Fed's ongoing "easings" are going to totally counter-swamped by deflationary trends.  I agree with many at this point that the Fed should be abolished or its mandate restricted to raising rates against severe inflation, when that recurs.  I don't believe the Fed has any business trying to prime the economy.

Good luck to all of you!

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