price of gold

Reader Ray Boyd asks, "How does one determine if a certain commodity or item is going up in value priced in mg or grams of gold?"

This is a foundational question. When you buy any asset, you are either selling gold to pay for it, or getting the funds from elsewhere and passing up the opportunity to store those funds in the form of gold. Either way, the asset purchased has a "gold cost".

More on Reader Question: Going Up, or Down?


This podcast is a recording of a conversation I had on July 30th with economist Keith Weiner, CEO of Monetary Metals and president of the Gold Standard Institute USA. We intended to chat for about 20 minutes, but wound up talking for almost an hour and a half! Due to the length, I’ve broken it up into two parts.

More on Podcast: Gold, Yield, and the End of the Dollar – Part 1

Reader Tony Lewis recently wrote to me with some excellent questions:
So when looking at your charts, in your opinion, would it be sound to buy when something is historically low in terms of gold grams? And what about gold itself? Is there a chart that determines when to buy gold?
Let’s start with the last question first: When should you buy gold?
To me, this is the same as asking, “When should I hold cash?” Owning physical gold insulates you from many forms of loss, especially the subtle forms, like loss of purchasing power through currency depreciation. It avoids counter-party risk. Really your only risk is physical theft. However, like cash, you have no upside. If you put 1 kg of gold in a safe, it will always be just 1kg of gold. It won’t ever grow, or pay dividends, or add further to your wealth. In 50 years you can come back, open the safe and still find 1 kg of gold sitting there waiting for you. So you have downside protection, but no upside.
I think everyone should have a “cash cushion”. Part of this would be in local currency, to help cover bills and expenses in an emergency. And part of it should be in gold, to cover the possibility that the currency could become worthless, either suddenly, or gradually over time. If you are saving up for a big purchase or expense in the future, like a child’s college tuition, your retirement, or a new house, it could make sense to do that saving in gold. The further in the future, the more sense gold makes.
The current price of the dollar in gold really isn’t relevant. The dollar goes up and down all the time, depending on many factors: monetary policy, the state of the economy, fears of terrorist strikes, military actions, etc. Sometimes people are in desperate need of dollars to pay down debt, other times they don’t want to hold dollars because they are depreciating so rapidly. Gold doesn’t suffer from these factors. It just sits there. So as an anchor to a portfolio, to reduce volatility, and to provide stability in uncertain times, gold is the perfect asset. If you don’t feel you have enough, buy more now! The price of the dollar (or conversely, the dollar price of gold) just doesn’t matter.
If you are trying to make a profit by trading in dollars, the situation is more complex. Assuming that you are starting with some dollars, you want to find a point when the dollar is overpriced, and use that strength to buy a lot of gold for a small number of dollars. Then when the dollar falls, and becomes fairly priced or even under valued, you want to use that gold to buy a lot of dollars. Lather, rinse, repeat. At each iteration, you should have more gold than you had before – you are making a profit by trading in dollars. This sounds simple, but is difficult in practice.
As the long term trend of the dollar is down, you are really playing bear market rallies to make your profits. Trading against the trend like this can work, but it is quite risky, and requires care and attention. And there is always the risk is that while you are holding dollars and waiting for them to appreciate, they will instead become worth much less, or even become worthless.
My assessment is that the dollar is currently vastly over-valued, with much more downside than upside. This doesn’t mean that it cannot become even more over priced. Still, I have been selling my dollars and buying other things with them, including gold, silver, platinum, real estate, crypto-currencies like Bitcoin, and value stocks. Gold for portfolio stability, and other assets that I think will grow in gold value over time. I don’t care whether they become worth more dollars or not. I want them to be growing in gold value.
This leads naturally back to the first question.
Is it a good idea to buy things that are at historically low prices? Of course, the old adage is to “buy low and sell high”, and this suggests that when things are historically cheap you should buy them… but the fact that something is cheap doesn’t mean that it can’t get even cheaper!
The real key is find things that are good values, assets whose value is under-appreciated by the market. This requires research into the fundamental value of the asset (supply and demand for commodities, management, cash flow and balance sheet for businesses). Over the years, stocks have grown in gold value, but they have long periods of falling value followed by long periods of growth in value. Here is a long term chart of the S&P Index, for example:

SP500 1880
If you have a really long view of your investments, it is probably fine to buy most things when they are at or near historic lows. Assuming that the asset will still have value in the future (like durable commodities, solid companies producing perennial products, etc.) you may have to wait a few years, or even a decade, before they once again start to shine, but eventually you will see profits. Buying at the top of the trading range, you might have to wait much longer… and in some cases, you might never see profits. Examples are Coffee in 1997, Palladium in 2001, and Uranium in 2007. Or US stocks in 2000.
But note the caveat in the previous paragraph, “assuming that the asset will still have value in the future”. I would not include most government issued currencies (especially the USD, JPY and EUR), government bonds, and even many stocks (especially small caps) in that category. These are things that can certainly be traded to grow the gold value of your portfolio, but they are traded on a short term basis, and have to be watched carefully. If you aren’t a full time trader, they should be traded with small position sizes, so that a complete loss will not hurt your portfolio too much. They can be speculative opportunities, but are not long term investments.
Turning back to US stocks, the S&P 500 is far cheaper now than it was in 2000 (about one-third the price) and considerably less than it was in the late 1960s. However, it is a bit higher than it was in 1929, and in fact, is higher than it has been for all but 20 or so years out of the last 135. So I would not rate it as “dirt cheap”.

Although stock prices have been rising for the last several years, I am concerned that the current US stock market looks more like 1978 than like 1985. If so, buying today might mean suffering through an 85% loss and waiting 15 years just to break even – but bought without debt, and held for the long term (maybe 30 years) you could still make 4 or 5 times your initial investment at the top of the next wave.

For those of us with a shorter time horizon, the best plan may be to treat stocks as short term speculations, going long while they are rising, and using trailing stops or other technical indicators to pull us back out to gold when they start to collapse.

One asset class that is has been beaten down to near all-time lows is gold stocks. Here is a chart of the HUI Gold Bugs index:

HUI 1997

I think that a carefully selected portfolio of gold mining stocks, similar to the Gold Stock Analyst “GSA Top 10”, has great potential. It may take a few years to really take off, but I think the downside is limited, and the upside is excellent. The key is to put only very strong companies into the portfolio, as the bursting of the credit bubble created by the world’s central banks will disrupt financing plans and stress any company that does not have an iron-clad balance sheet – even it it is sitting on massive gold reserves.

I subscribe to the Gold Stock Analyst and use their Top 10 recommendations myself. I have followed their portfolio (priced in gold, of course) for many years, and recommend it as the best way I’ve seen to play the gold stock sector. If you are interested in trying their service, let me know and I’ll see if I can negotiate a deal for my subscribers.

More on Reader Questions: When to Buy?


Markets were almost all higher this week, with only the HUI gold stocks losing ground. Bitcoin and the Japanese Nikkei stocks gained more than any other asset classes. The USD and JPY the strongest of the government-issued currencies. On Friday I was a guest on Power Trading Radio with John O'Donnell. We talk about stocks, housing, income, and discuss our forecasts for the price of gold. Check it out!

More on Market Update 11 Oct 2013: Gold Stocks Keep Falling


This was a mixed week for everything but government issued currencies, which were all lower. Bitcoin gained more than any other asset class, while cotton and coffee showed the greatest losses. Precious metals gained slightly, and gold stocks were unchanged. This assessment is based on the London PM fix; if the New York close was used instead, most prices given would be about 1.5% lower, and every asset class but silver and Bitcoin would be in the red for the week.

More on Market Update 23 Aug 2013: Silver at Resistance


Bitcoin was the only falling asset this week, as the US Dollar surged against gold and other currencies, pulling most other assets up with it. Crude oil was especially strong.

Bitcoin gave back about a third of last week's gain, falling 5.5% to close at 2.53 g. Trading volume was slightly higher than last week, averaging about 78 kg per day.

More on Market Update 28 Jun 2013: Crude Oil Soars


This week most markets continued to make gains, with all assets except silver and coffee advancing. Japanese  stocks were especially strong.

Bitcoin rose 33.5% to close at 2.57 g. This more than recovers its drop last week. Expect continued volatility!

More on Market Update 10 May 2013: TLT and HUI Treading Water


Many people are rightly concerned that the US Federal debt has been exploding in the last few years. A quick look at the following chart will show why:

This chart doesn't try to show all the debts of the United States, just the publicly acknowledged debt of the federal government. So it doesn't include state and local debt, and it also omits unfunded liabilities (promises to pay in the future for things like medicare and social security). This is the number that grows each year by the size of that year's deficit.

More on Is the Debt Bomb a Dud?


I got a great question in my email this morning, and I'd like to share it, and my answer, with you.

Using your methods, how can one know when gold and silver are grossly overvalued? Much like the tech stocks around 2000-2001?
I don't think of it in quite those terms… I use gold as the unit of measure, and thus see it as unchanging.  The USD may rise and fall, silver may rise and fall, but gold is my constant, like cash.
If you put 1kg of gold in a safe for 10 years (or 100 years!), you will still have 1kg of gold.  No gain, no loss. Put enough $100 bills to buy 1kg of gold in the same safe, and you will probably not be able to buy anything close to the same amount of stuff with it in 10 or 100 years (if the bits of paper have any value at all!)
So taking the US Dollar first, your question would be translated as "how can one know when the dollar is grossly overvalued, much like the tech stocks in 2000-2001?"  If that time comes again, you will want to sell your dollars and go to cash (gold), just as in 2000-2001.  Conversely, we could get a bottom in the USD, as in 1980, and it might become a good long-term speculation.  I don't think that is anywhere close yet.  And there is a real possibility that the USD will continue to fall gradually for a long time, or suddenly fall a lot, or even be replaced by some other monetary unit leading to a near-zero value… so I see buying dollars as a risky speculation, but one that could be quite profitable from time to time – as indeed it has been for the last 12 months or so.
My favorite tool is the "half-life of the dollar chart".  When I see the USD moving below the half-life curve significantly, say by 10%, I start paying attention. If it starts to recover, you could be entering a period of mean reversion that would make the USD a good buy.  The main fundamental that is likely to drive the USD up would be positive and rising real rates of interest.  When the bond vigilantes ride again, it might also be time to buy USD, at least for a medium term speculation. As long as the Fed is holding interest rates low, and concern about the economy and deflation is strong, I think you are better off in cash (gold), since the Fed will be using various tricks to increase the money supply to fight these perceived threats.
Silver is a different animal; I see silver as primarily an industrial metal, with a secondary monetary appeal to smaller savers.  As such, it is quite volatile, but unlike the USD, will never be without value – and is thus a less risky speculation than the dollar.  My suspicion is that either the economy will need to improve dramatically, or the USD will need to tank, for silver to show real strength.
I hope this is helpful!
Sir Charles

More on When gold and silver are grossly overvalued?


The USD, at 19.4 mg, is down 2% for the year to date, but is 4.5% above it's 200 day moving average and 18% above its all time low of 16.4 mg, set in September of 2011.  It has been in an uptrend since then, crossing above the moving average line on 3/14, and testing it as support on 3/27.

More on USD Update 7-Jun-2012

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