Gold!

I won’t say that I think we’re in a gold bubble because an ounce of gold has lots of room to rise until it trades at historical prices for tulip bulbs or 100 shares of Nortel.

Fundamental analysis points to a high value for gold as well. In addition to its ability to sit around in piles near armed guards, an ounce of gold has many uses:

– paperweight
– ring
– shiny thing
– very small barbell

We have reason to believe that historical fascination in gold will persist. After all, modern inventions like computers and smart phones are in no way more interesting to look at than a shiny piece of gold.

Comments

  1. Big Cajun ManSeptember 7, 2011 at 6:40 AM

    100 shares of Nortel... he, he, he... I guess that fits well with the Tulip Bubble

    ReplyDelete
  2. chris stephensonSeptember 7, 2011 at 12:07 PM

    I'm glad you didn't include "eat it" as one of gold's uses. Midas found that out the hard way.

    ReplyDelete
  3. paulSeptember 7, 2011 at 6:45 PM

    what about gold teeth, that's a use ?

    ReplyDelete
  4. Michael JamesSeptember 7, 2011 at 7:00 PM

    @Paul: And gold lighters. There are so many uses. Those who own gold shouldn't be worried that all uses combined justify less than one-tenth of gold's current price.

    ReplyDelete
  5. Balance JunkieSeptember 8, 2011 at 10:02 AM

    I think the current fascination with gold is due more to folks seeing it as a currency than a shiny piece of bling. As confidence in fiat currencies wanes, many see gold as the only alternative. How long that feeling lasts is anyone's guess. For the record, I'm not a gold bug and I'm not invested in the yellow metal - for many of the reasons you hinted at in this article. But I'm still happy for those who have profited from the rise in gold over the past decade. Thanks for the chuckle!

    ReplyDelete
  6. geneSeptember 8, 2011 at 9:37 PM

    There was an interesting podcast that might be of interest to readers (and the writer) of this blog, Michael.

    It's more or less trying to answer the question of "Why gold?". That is, why does gold traditionally serve as a store of value. It's somewhat pertinent to this particular post, and a good historical account. It's hosted by the excellent Planet Money podcast:

    http://www.npr.org/blogs/money/2011/02/07/131363098/the-tuesday-podcast-why-gold

    ReplyDelete
  7. Michael JamesSeptember 9, 2011 at 2:32 PM

    @Gene: Thanks for the pointer. The NPR piece is very interesting. The conclusion is that if we were going to pick an element to be the basis of money, then gold is the best choice.

    However, this would not give me much comfort as an owner of gold. What if we decide not to choose any element as the basis of money? This is what the world's major governments have done. Investors who don't trust governments cling to gold, but I think it's a game of hot potato. We will keep selling gold to bigger fools until finally the spell we're under that causes us to overvalue gold gets broken and the last people left holding gold will be disappointed to find its value drop to whatever value it has for practical purposes such as in electronics and jewelry.

    ReplyDelete
  8. geneSeptember 9, 2011 at 4:58 PM

    Agreed, the podcast explains why gold was initially used to mint coins, but really, that purpose is mostly obsolete (our coins no long have precious metals in them and are no longer backed by gold), except in countries with really poor currencies or corrupt governments. In those cases, perhaps holding jewelry and gold is safer than holding local currency.

    I heard a story about bitcoin on that same podcast. Apparently its creators chose to model their currency after gold, making the first bitcoins relatively easy to "find" using powerful computers to do complex calculations (analogous to mining gold). As more bitcoins were found, they became increasingly difficult to find, such that now it requires a lot of time and electricity to find new bitcoins. Bitcoins have also suffered from dramatic bubbles.

    Here's that podcast episode, in case you're interested:
    http://www.npr.org/blogs/money/2011/07/13/137795648/the-tuesday-podcast-bitcoin

    ReplyDelete

Post a Comment

Popular posts from this blog

Short Takes: InvestorLine’s HISAs, 24-Hour Trading, and more

I recently moved some cash into BMO InvestorLine’s high-interest savings accounts (HISAs) that are structured as mutual funds.  Their designations are BMT104, BMT109, and BMT114, and they purportedly pay 4.35% annual interest (which they can change whenever they like).  However, the way they report the monthly interest payments is so baffling that I wasn’t able to sort it out in my first 15 minutes of trying.  A further complication is the following text in the HISA description: “The Bank may pay, monthly or quarterly, compensation to your Dealer at an annual rate of up to 0.25% of the daily closing balance in the BMO HISA.”  I couldn’t find any evidence of such a charge, but I haven’t been invested for a full quarter, and I can’t yet say that such a charge isn’t buried somehow in the confusing reporting.  I have more digging to do before I can recommend these HISAs. Here are some short takes and some weekend reading: Preet Banerjee explains the dangers of Robi...
Read more

My Asset Allocation

I’ve resisted discussing my asset allocation for some time, but now is finally the time to describe it and the reasons behind it. I’m not holding it out as a model portfolio; I believe it’s suitable for me and not necessarily anyone else. With that warning, enjoy the discussion and feel free to ask questions or take some pot-shots. The main reason why I haven’t discussed my asset allocation in detail before now is that I don’t want readers to treat it like a model portfolio and follow it blindly. Everyone’s situation is different. The need for variation in asset allocation from one investor to the next usually isn’t huge, but there is no one-size-fits-all portfolio. A secondary reason for keeping my asset allocation to myself is that I can’t be sure I’ll never change it. For example, I recently made the minor change of switching from an ETF of small-cap stocks to an ETF of small-cap value stocks . I don’t have any plans to change my current allocation, but I may think differe...
Read more

Updated Currency Exchange Method at BMO InvestorLine

There is now a more recent update of the method I use for exchanging currency at BMO OnvestorLine . I recently changed the procedure I use to convert large sums between Canadian and U.S. dollars at BMO InvestorLine. The method I use saves a lot of money compared to using the InvestorLine foreign exchange system. The latest change I made eliminated an annoying interest charge that I had to ask to be reversed. Most people don’t realize how expensive it can be to exchange currency. The extra charge banks and brokerages add gets hidden in the exchange rate. To see this extra charge, start by taking a sum in Canadian dollars, say C$10,000, and finding out how many U.S. dollars you can get. Then see what this U.S. amount would get going back to Canadian dollars. Many people might guess they’d get their original C$10,000 back, but they’d be wrong. In a recent test I did at BMO InvestorLine, I’d get back C$9754, for a loss of C$246 in two currency exchanges. That’s $123 per excha...
Read more

Archive

Show more