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Deal Addict
Aug 28, 2010
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WalmartMartyr wrote: I dunno, but did golds bubbe ever pop throughout history? It never went down did it?
I'm not sure if you are being sarcastic or not.


But anyway, look what happened the last time there a bubble in the early 80's:

http://www.goldprice.org/30-year-gold-p ... story.html




Edit: And if you consider inflation, if you bought at the peak of the bubble in the 80's you still haven't made your money back.

http://www.marketoracle.co.uk/Article13577.html
Deal Addict
Jul 22, 2008
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+1 exactly my point.
FunSave22 wrote: I'm not sure if you are being sarcastic or not.


But anyway, look what happened the last time there a bubble in the early 80's:

http://www.goldprice.org/30-year-gold-p ... story.html




Edit: And if you consider inflation, if you bought at the peak of the bubble in the 80's you still haven't made your money back.

http://www.marketoracle.co.uk/Article13577.html
Deal Fanatic
Jul 1, 2007
8569 posts
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Terrific_Deals2k8 wrote: The same gold bulls are the ones that kept saying buy buy buy when the S&P was around 1300 (e.g. Great Opportunity), lol. I will say this once again, gold stocks are valued primarily based on the commodity price. So if prices are high now and miners make acquisitions at current price levels, the potential future gain becomes much less (low margin of safety).

Furthermore, take a look at the demand for gold; has it changed/increased by a factor that justifies the price increase. Moreover, even though demand might be increasing is it because of actual industrial application/consumer demand or are people/investors simply buying it and throwing it in a vault in hopes that the price will rise? You're buying an asset that mined from the ground, then storing it back into the ground (figuratively). Now, tell me how that increases value of the asset...

Gold prices are merely a reflection of buyers' perception of how much it's worth (fictitious); at least companies such as Msft or Intel actually innovate and earn profits on their unique products. Gold is homogenous and produced by many (almost perfect competition). The only way for a miner to be better is to buy more assets and try to achieve efficiency/EoS by scaling. But if you buy overvalued assets in hopes of scaling, then you are basically holding out that gold prices MUST continue to rise in order for the company to generate additional profits. Where as for instance, Windows 7 is somewhat unique and produced by one (there are a few competitors but it's imperfect competition).

Mark my words: WE ARE NOW IN A GOLD BUBBLE.

Great post. If aliens observed human's fascination with shiny metals, they'd think we're acting like canines, digging up bones only to bury them in the backyard. If I wanted exposure to the insanity that is gold hoarding, I'd like to buy the companies that dig it up though.
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Terrific_Deals2k8 wrote: The same gold bulls are the ones that kept saying buy buy buy when the S&P was around 1300 (e.g. Great Opportunity), lol. I will say this once again, gold stocks are valued primarily based on the commodity price. So if prices are high now and miners make acquisitions at current price levels, the potential future gain becomes much less (low margin of safety).

Furthermore, take a look at the demand for gold; has it changed/increased by a factor that justifies the price increase. Moreover, even though demand might be increasing is it because of actual industrial application/consumer demand or are people/investors simply buying it and throwing it in a vault in hopes that the price will rise? You're buying an asset that mined from the ground, then storing it back into the ground (figuratively). Now, tell me how that increases value of the asset...

Gold prices are merely a reflection of buyers' perception of how much it's worth (fictitious); at least companies such as Msft or Intel actually innovate and earn profits on their unique products. Gold is homogenous and produced by many (almost perfect competition). The only way for a miner to be better is to buy more assets and try to achieve efficiency/EoS by scaling. But if you buy overvalued assets in hopes of scaling, then you are basically holding out that gold prices MUST continue to rise in order for the company to generate additional profits. Where as for instance, Windows 7 is somewhat unique and produced by one (there are a few competitors but it's imperfect competition).

Mark my words: WE ARE NOW IN A GOLD BUBBLE.

As you state, gold prices are driven by demand, not the metal's actual value. So if faith in the gloabl eocnomy, and currencies including the U.S. dollar continue to diddle, and the populus sees gold as a safe haven and hedge against this sort of market turmoil, how do you see the price of this safe haven plumeting in the near future? (Not necessarily diagreeing with you, just asking your opinion).
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Dec 31, 2006
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I dont think gold is the bubble.. something else is the true bubble. I'll continue to buy (on pullbacks).. shame i got too many miners vs the bullion though, seriously dragging performance.

$1767
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Jul 22, 2008
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Fox2k wrote: As you state, gold prices are driven by demand, not the metal's actual value. So if faith in the gloabl eocnomy, and currencies including the U.S. dollar continue to diddle, and the populus sees gold as a safe haven and hedge against this sort of market turmoil, how do you see the price of this safe haven plumeting in the near future? (Not necessarily diagreeing with you, just asking your opinion).
F*ck I wrote a semi-long explanation of why gold is trending toward a bubble and why it's not a good investment, but RFD logged me out!! Argh!! > :(
  • Basically, gold demand is comprised of 3 main components: consumer/industrial demand, central bank holdings, and fear-induced safe haven holdings.
  • Global demand has been increasing, but the level of price increase is NOT justified based on the change in demand +10-15% (2009-2010), where as the commodity's price has become inflated (30%+)
  • The major demand lies within investment (gold bars and coins), so I'll make the case again that people are merely digging it up from one place and storing it in a vault somewhere else in EXPECTATION that the price will continue to rise.
  • Off the top of my head, I can recommend 3-4 types of different financial instruments that could be used as a safe haven hedge against the current global "issues" (debt, recession, inflation, etc...)
  • Thus, gold as a safe haven hedge CAN be substituted. There are quite a few undervalued commodities that have tight supply and increasing demand, yet aren't overvalued on a historical or relative basis compared to gold/PMs.
  • If I were to choose to invest in goods/service oriented companies or gold producers/gold, I'd invest in the former without hesitation. Especially those that have steady demand and high pricing power. Why would I want to buy an overvalued asset when there are plenty of oversold equities to choose from presently?
  • Gold price is primarily driven by fear. However, remember that "fear" (global issues) are usually temporary, b/c the human psyche can adapt. If the same news articles/problems are pushed/broadcasted to investors, people will take it as normal (it will only help to drive expectations lower). The reason for the massive sell-offs recently is b/c the "fear" is still fresh, therein also lies the reason why gold prices have skyrocketed over the past few weeks.
  • Once savvy investors start to realize that the gold bubble is not entirely different from a tech or financial bubble, the price will not only correct - it will crash. History tends to repeat itself, expect the magnitude may be less than it was 30+ yrs ago when the gold bubble collapsed in the 1980s. ;)
  • Even simple investment metrics are pointing towards a gold bubble (Goldcorp: EV/EBITDA 13x+, P/FCF 100x+, P/S 8x+). Plus, like I said, in order to "beat" the other gold miners/producers you have to achieve EoS (economies of scale) by scaling, which involves acquisition. However, at the current price, I believe the M&As are overvalued based on the required level of gold prices, in order to generate profits. (E.g. acquisition of cheap assets are a good strategy to achieve scale, but when the price of the commidity has risen 2-3x above its historical price that raises RED FLAGS for me - as in poor strategy).
http://www.bloomberg.com/news/2011-07-2 ... -year.html
http://www.gold.org/investment/statisti ... tatistics/
Deal Addict
Jul 22, 2008
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I had a few more bullet points that I had written before, but don't remember off the top of my head... Anyway, the points were merely examples to support the overall theory that gold prices are overvalued. :lol:
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Terrific_Deals2k8 wrote: [*]Even simple investment metrics are pointing towards a gold bubble (Goldcorp: EV/EBITDA 13x+, P/FCF 100x+, P/S 8x+). Plus, like I said, in order to "beat" the other gold miners/producers you have to achieve EoS (economies of scale) by scaling, which involves acquisition. However, at the current price, I believe the M&As are overvalued based on the required level of gold prices, in order to generate profits. (E.g. acquisition of cheap assets are a good strategy to achieve scale, but when the price of the commidity has risen 2-3x above its historical price that raises RED FLAGS for me - as in poor strategy).
[/LIST]
Umm, your other arguments are okay, but there's a huge problem with the above. First of all, EV has little meaning in the mining industry as properties are not usually booked at anywhere near their current market value, especially for a firm that has been in business a long time like Goldcorp (or its predecessors).

And P/CF for Goldcorp is less than 20 according to Yahoo Finance, and P/E = 18. Based on trailing numbers, of course, with none of the recent upside factored in on the gold price or on the decrease in labour or cost of oil.

I personally believe lots of juniors are severely overvalued though. But the goldbugs seem to love the juniors for some reason, even though, the few I follow seem to be notoriously poorly run.
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WalmartMartyr wrote: I dunno, but did golds bubbe ever pop throughout history? It never went down did it?

It has popped. I don't think we're at the bubble level yet. That said, there's a price channel to it and it doesn't have to pop for you to get hurt. In theory, gold could go back down to $1500 bucks and still be within an uptrend. Look back at the three spikes that broke up above the upper band: Sept 08 with Lehman, March 09 with market bottom, Sept to Dec 10 because India bought couple hundred tons off the IMF....and now with the market sell off. All basically associated with market hysteria.

We're at the top of the channel. If you want to buy, you need to buy on a pull back. Risk vs reward is not that great IMO in the short run. Especially with the miners not tracking to gold very well.

[IMG][IMG]http://img811.imageshack.us/img811/2035/goldz.jpg[/IMG] Uploaded with ImageShack.us[/IMG]
Deal Addict
Jul 22, 2008
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Mark77 wrote: Umm, your other arguments are okay, but there's a huge problem with the above. First of all, EV has little meaning in the mining industry as properties are not usually booked at anywhere near their current market value, especially for a firm that has been in business a long time like Goldcorp (or its predecessors).

And P/CF for Goldcorp is less than 20 according to Yahoo Finance, and P/E = 18. Based on trailing numbers, of course, with none of the recent upside factored in on the gold price or on the decrease in labour or cost of oil.

I personally believe lots of juniors are severely overvalued though. But the goldbugs seem to love the juniors for some reason, even though, the few I follow seem to be notoriously poorly run.

http://www.finviz.com/quote.ashx?t=gg&ty=c&ta=1&p=d

P/CF is not the same as P/FCF. GG might have a P/CF of around 20ish (finviz has it at 27). But P/CF isn't as meaningful as P/FCF, which tells you how much of a multiple you're paying per dollar of cash this company generates. P/FCF of 100x with a P/E of 18 is not a good sign, b/c it means the company is booking earnings, but has no cash to show for it. In the end, a major fundamental analysis aspect relies on DCF, which requires FCF for the model.

A good company such as AAPL has been in the past will have a low P/E (fwd) and low P/FCF. In Apple's case, P/E (fwd) = 11 and P/FCF = 11.26. But this doesn't necessarily mean I'm recommending AAPL, I was just using it as an example.

http://www.finviz.com/quote.ashx?t=aapl&ty=c&ta=1&p=d
http://www.finviz.com/quote.ashx?t=goog&ty=c&ta=1&p=d (Google P/E: 13x, P/FCF 22x)
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Jul 22, 2008
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Sheky wrote: It has popped. I don't think we're at the bubble level yet. That said, there's a price channel to it and it doesn't have to pop for you to get hurt. In theory, gold could go back down to $1500 bucks and still be within an uptrend. Look back at the three spikes that broke up above the upper band: Sept 08 with Lehman, March 09 with market bottom, Sept to Dec 10 because India bought couple hundred tons off the IMF....and now with the market sell off. All basically associated with market hysteria.

We're at the top of the channel. If you want to buy, you need to buy on a pull back. Risk vs reward is not that great IMO in the short run. Especially with the miners not tracking to gold very well.


Part of the reason is because it takes a long time to explore and develop these mines. That's why I'm against precious metal stocks. You have an asset that takes quite awhile to take from exploration stage to finished product. Meanwhile, I wouldn't be too confident that gold prices will continue to rise for the foreseeable future. My thought process led me to evaluate other potentially undervalued assets that could be used as a substitute safe haven hedge.
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Feb 15, 2008
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Terrific_Deals2k8 wrote: http://www.finviz.com/quote.ashx?t=gg&ty=c&ta=1&p=d

P/CF is not the same as P/FCF. GG might have a P/CF of around 20ish (finviz has it at 27). But P/CF isn't as meaningful as P/FCF, which tells you how much of a multiple you're paying per dollar of cash this company generates. P/FCF of 100x with a P/E of 18 is not a good sign, b/c it means the company is booking earnings, but has no cash to show for it. In the end, a major fundamental analysis aspect relies on DCF, which requires FCF for the model.

A good company such as AAPL has been in the past will have a low P/E (fwd) and low P/FCF. In Apple's case, P/E (fwd) = 11 and P/FCF = 11.26. But this doesn't necessarily mean I'm recommending AAPL, I was just using it as an example.

http://www.finviz.com/quote.ashx?t=aapl&ty=c&ta=1&p=d
http://www.finviz.com/quote.ashx?t=goog&ty=c&ta=1&p=d (Google P/E: 13x, P/FCF 22x)

Oh of course! Goldcorp isn't a great example, but I was just trying to point that P/CF wasn't nearly as absurd as you were claiming. Whether or not the cashflow is 'free' is, IMHO, immaterial. Apple's earnings fall off a cliff in the next year or two if they don't aggressively re-invest, while a gold producer's earnings are pretty rock solid even if they don't re-invest a dime.

h
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Terrific_Deals2k8 wrote: F*ck I wrote a semi-long explanation of why gold is trending toward a bubble and why it's not a good investment, but RFD logged me out!! Argh!! > :(
  • Basically, gold demand is comprised of 3 main components: consumer/industrial demand, central bank holdings, and fear-induced safe haven holdings.
  • Global demand has been increasing, but the level of price increase is NOT justified based on the change in demand +10-15% (2009-2010), where as the commodity's price has become inflated (30%+)
  • The major demand lies within investment (gold bars and coins), so I'll make the case again that people are merely digging it up from one place and storing it in a vault somewhere else in EXPECTATION that the price will continue to rise.
  • Off the top of my head, I can recommend 3-4 types of different financial instruments that could be used as a safe haven hedge against the current global "issues" (debt, recession, inflation, etc...)
  • Thus, gold as a safe haven hedge CAN be substituted. There are quite a few undervalued commodities that have tight supply and increasing demand, yet aren't overvalued on a historical or relative basis compared to gold/PMs.
  • If I were to choose to invest in goods/service oriented companies or gold producers/gold, I'd invest in the former without hesitation. Especially those that have steady demand and high pricing power. Why would I want to buy an overvalued asset when there are plenty of oversold equities to choose from presently?
  • Gold price is primarily driven by fear. However, remember that "fear" (global issues) are usually temporary, b/c the human psyche can adapt. If the same news articles/problems are pushed/broadcasted to investors, people will take it as normal (it will only help to drive expectations lower). The reason for the massive sell-offs recently is b/c the "fear" is still fresh, therein also lies the reason why gold prices have skyrocketed over the past few weeks.
  • Once savvy investors start to realize that the gold bubble is not entirely different from a tech or financial bubble, the price will not only correct - it will crash. History tends to repeat itself, expect the magnitude may be less than it was 30+ yrs ago when the gold bubble collapsed in the 1980s. ;)
  • Even simple investment metrics are pointing towards a gold bubble (Goldcorp: EV/EBITDA 13x+, P/FCF 100x+, P/S 8x+). Plus, like I said, in order to "beat" the other gold miners/producers you have to achieve EoS (economies of scale) by scaling, which involves acquisition. However, at the current price, I believe the M&As are overvalued based on the required level of gold prices, in order to generate profits. (E.g. acquisition of cheap assets are a good strategy to achieve scale, but when the price of the commidity has risen 2-3x above its historical price that raises RED FLAGS for me - as in poor strategy).
http://www.bloomberg.com/news/2011-07-2 ... -year.html
http://www.gold.org/investment/statisti ... tatistics/

interesting analysis, good food for thought. thanks for sharing that :]
Deal Fanatic
Aug 25, 2010
5314 posts
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Fox2k wrote: interesting analysis, good food for thought. thanks for sharing that :]
Except that for every "gold is in a bubble" opinion/article, you can find some equally well thought out opinions/articles which argue the opposite. For example:

http://www.zerohedge.com/news/gold-bubb ... uggest-not

Personally, I tend to ignore opinions at the opposite ends of the spectrum ("Bubble! Sell now!" or "Gold to $3000! Buy!"). If you want to use gold as an hedge now I say go for it. But should you ONLY use gold as an hedge? Nope. As was mentioned previously, there are at least 3-4 ways to hedge in these volatile markets. So instead of putting all your eggs in the same "hedge basket", why woudn't you use 2 or 3 hedging methods in your portfolio? After all, if it's common sense to diversify your equities, it should also be common sense to diversify when it comes to hedging.
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Jul 22, 2008
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JustBob wrote: Except that for every "gold is in a bubble" opinion/article, you can find some equally well thought out opinions/articles which argue the opposite. For example:

http://www.zerohedge.com/news/gold-bubb ... uggest-not

Personally, I tend to ignore opinions at the opposite ends of the spectrum ("Bubble! Sell now!" or "Gold to $3000! Buy!"). If you want to use gold as an hedge now I say go for it. But should you ONLY use gold as an hedge? Nope. As was mentioned previously, there are at least 3-4 ways to hedge in these volatile markets. So instead of putting all your eggs in the same "hedge basket", why woudn't you use 2 or 3 hedging methods in your portfolio? After all, if it's common sense to diversify your equities, it should also be common sense to diversify when it comes to hedging.

+1, I was merely making that case that it's not the only nor best hedging tool, given that it seems overvalued (but that's still a matter of opinion). I wanted to provoke some thoughtful discussion as to other options that could diversify risk, yet still achieve that "safe haven" goal/end result. :)
Newbie
Nov 27, 2010
33 posts
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Considering the non matching performance of Precious Metal Funds (arrrrgghhhhh!!!) versus Gold prices can one assume that if Gold falls the Precious Metal Funds will fall even lower? I personally do not even see a connection between the two in any performance view (visible to me, someone else might see a correlation). Prices dictated by completely different motivators.

Cheers apimom
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Jul 1, 2007
8569 posts
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apimom wrote: Considering the non matching performance of Precious Metal Funds (arrrrgghhhhh!!!) versus Gold prices can one assume that if Gold falls the Precious Metal Funds will fall even lower? I personally do not even see a connection between the two in any performance view (visible to me, someone else might see a correlation). Prices dictated by completely different motivators.

Cheers apimom

Just as the overall markets are disconnected from fundamentals, due to hysteria, same goes for precious metals miners. Eventually hysteria subsides and stocks again trade based on fundamentals, so the disconnect is to be taken advantage of.
Money Smarts Blog wrote: I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
Newbie
Jan 20, 2011
41 posts
3 upvotes
Gold and Silver, just make things simple.

It's not even close to a bubble.

Compare to tech and real estate bubble then we will know.

Most people are still ignorant on how to invest in precious metals
Most people still believe it is a bubble
It was a bubble when it was 400, 600, 800, 1000, 1200, 1400, 1600, and now 1800

When it's bubble, this is what you see:
Price goes up -> This is your last chance to buy to gain huge earning! Buy a few and you are set for your life! This crap will keep going up forever
Price goes down -> Great buying opportunity, BUY BUY BUY

Now, for precious metal:
Price goes up -> CRAP! BETTER SELL! THIS IS A BUBBLE
Price goes down -> CRAP! IT'S DROPPING! BETTER SELL TO CUT LOSS

The fact that you hear all these talks about gold and silver bubble is EXACT PROOF we are far from bubble, because if it's a bubble, the word "bubble" is the last thing you will hear

Of course this will be an up and down ride, but it's far from bubble popping
and, this WILL be the biggest bubble ever, considering how much money governments are printing worldwide

If you want more technical stuff
Gold/DOW ratio is still 6/7 to 1
Silver/Gold ratior is still around 45 to 1

Long way to go.

Exit strategy is gold/DOW 1/2 to 1, and Silver/Gold around 16 to 1

Ciao. See you guys later when gold makes another historic high in half a year or so.
Newbie
Jan 20, 2011
41 posts
3 upvotes
Terrific_Deals2k8 wrote: The same gold bulls are the ones that kept saying buy buy buy when the S&P was around 1300 (e.g. Great Opportunity), lol. I will say this once again, gold stocks are valued primarily based on the commodity price. So if prices are high now and miners make acquisitions at current price levels, the potential future gain becomes much less (low margin of safety).

Furthermore, take a look at the demand for gold; has it changed/increased by a factor that justifies the price increase. Moreover, even though demand might be increasing is it because of actual industrial application/consumer demand or are people/investors simply buying it and throwing it in a vault in hopes that the price will rise? You're buying an asset that mined from the ground, then storing it back into the ground (figuratively). Now, tell me how that increases value of the asset...

Gold prices are merely a reflection of buyers' perception of how much it's worth (fictitious); at least companies such as Msft or Intel actually innovate and earn profits on their unique products. Gold is homogenous and produced by many (almost perfect competition). The only way for a miner to be better is to buy more assets and try to achieve efficiency/EoS by scaling. But if you buy overvalued assets in hopes of scaling, then you are basically holding out that gold prices MUST continue to rise in order for the company to generate additional profits. Where as for instance, Windows 7 is somewhat unique and produced by one (there are a few competitors but it's imperfect competition).

Mark my words: WE ARE NOW IN A GOLD BUBBLE.

If you post this every year, then probably about 10 years later you will be correct.
Mark my words: We are in bull cycle phase 2 for gold

I will update this as time goes on. See you later, probably half a year later, when gold makes another historic high

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