Avoid gold scammers

[EJ]

I received this distressing note from a friend of iTulip today. The name of the dealer in question is withheld because we don't have time to get into a pissing contest with them about it. But I can say, after purchasing precious metal coins for more than 40 years that I'm hard pressed to find an industry with a higher preponderance of sleazy, unscrupulous, rip-off artists. I have worked with dozens of dealers over the years and have developed the theory that most of the guys who call–many based outside New York City, for some reason–used to work for various boiler room outfits where they tried to sell crap penny stocks to old ladies, but got fired not because you were too sleazy but because they were too stupid to make their numbers. They were gladly hired by gold dealers.

Case in point:
Eric,

My friend has been ripped off by Scumbag Gold Gallery Ltd. (not the real name).

She lost 35% of her investment made one year ago. Her $100K gold purchase is now only worth $65K, according to Lear. They gave her a summary of her portfolio at her request.

Last year, they convinced her that numismatic coins will increase in value more than bullion gold, and that only cheap skates who don't know any better would buy bullion coins. She is a 60 year old woman, who makes the investment decisions for her family. They told her, "Why buy a Mustang when you can buy a Rolls Royce?" and that numismatics go up three to four times bullion in a gold bull cycle. They called her a "cheap" for not wanting to buy more numismatics.

We need to get the word out. It's not enough to tell people to buy gold. We need to let them know how NOT TO GET SCAMMED from the legions of scumbags who are now in the gold business. They use slimy sales techniques and charge outrageous commissions. Scumbag Gold admitted they charged her 35% commission on the coins. That should have been disclosed up front.

My friend and I want to prevent other people from getting hurt. Regulators need to think about legislation to protect consumers. Real estate fraud is on everyone's mind, because as usual the regulators did nothing during the fraud and are now dealing with issues of 5 years ago, just like the clean-up after the bubble bfore that, in tech stocks. Maybe just once they can get in front of a problem, instead of chasing it after it's snowballed.

The gold dealers tell me regulation is a bad idea, because it's punitive to small companies. But I think a simple disclosure form should be mandatory; gold dealers should disclose the market value of the coin they are claiming is worth two times what they are selling it for, and they should disclose their
commission. And there should be a place to report them so they can be put out of business for lying to elderly women, or anybody for that matter.

I found out today that gold dealers are not licensed. Is this true?

We need to get the word out - buyer beware!

I trust Franklin Sanders of The Money Changer.

Sincerely,

Schahrzad Berkland
I'm sure you all feel as bad for Schahrzad's friend as I do. Unfortunately, this kind of thing is common in the coin business, and has been for as long as I can remember. This is why, by the way, that you don't hear iTulip ranting about how gold is "real money" that somehow magically confers upon all who own, deal in, or trade it the qualities of honesty and good character. What nonesense. Just as many awful things have been done in the name of gold as any other money. In fact, gold market has a lot of catching up to do to become as safe and transparent as stocks or bonds.

This thread is about helping our readers keep from getting ripped off, by pointing out the do's and don'ts, and recommending dealers our community has learned to trust.

If they ain't on the iTulip list, don't buy from them! Don't buy anything from anyone calling you cold on the phone, and be on high alert from anyone calling form New York state.

I'll add to the list of good guys the one I've learned to trust over 10 years: Eric Carlson of Lexington Coin (781) 863-1500.

[DemonD]

There are two gold ETF's that track the price of gold bullion: GLD and IAU. Both are sensible ways to hedge against hyperinflation and without the personal responsibility of holding physical gold.

[Spartacus]

>> many based outside New York City

I'm unfamiliar with this usage - did you mean the more common "based out of"?

In other words, calling from NY city?

[grapejelly]

There are two gold ETF's that track the price of gold bullion: GLD and IAU. Both are sensible ways to hedge against hyperinflation and without the personal responsibility of holding physical gold.

My opinion is that physical is very important and that these ETFs are more "paper". Diversify away from paper, is the idea here.

I suggest buying kruggerrands, philharmonics, mapleleafs, American Gold Eagles, and some physical silver in the form of generic rounds and 10oz bars. Avoid "proof" versions and anything along these lines that is said to have a premium of more than $5 to $15 per ounce of gold.

For fun, you might want to invest in some American double eagles or eagles from the 19th century. The St. Gaudens are pretty too but there is more of a chance for numismatic premium on the earlier versions. I wouldn't pay more than $20 - $50 per ounce over the POG for these although there are people who have done well collecting truly rare gold coins.

Anyway, I would never buy from someone calling me. There are some very good reputable dealers on the web that are a pleasure to deal with. I think that Colorado Gold, APMEX, CNI and Tulving are top notch, with the winner being APMEX overall for their fabulous website and decent prices and great customer service.

[WDCRob]

How do call options figure into the physical vs paper conversation? Is there a risk that you'd be unable to exercise the option if things went truly haywire?

[grapejelly]

How do call options figure into the physical vs paper conversation? Is there a risk that you'd be unable to exercise the option if things went truly haywire?

I don't know. But I do know that in the physical vs. paper conversation, either it's paper, or you have it in your physical possession.

Anything not in your possession is a paper claim, is it not? A liability of someone else.

There is only one thing that is not a claim on someone else and that is physical commodities in your possession.

If you think an EFT or bullionvault or an option is the same thing as having a physical commodity, you are ignoring the facts.

[metalman]

agree on all the phone scammers. lot's of sleeze in the biz, unfortunately. agree also on the need for physical. buy bullion coins... eagles have a low premium, but are alloy. prefer .999 pure, such as philharmonics and canadian maples are good. i don't like krugerrands. yeh, they have the lowest premium but a lot were mined with apartheid labor... not for me. forget numismatics, that's collecting not hedging financial risk... a whole different ball game.

i like these guys, their web site shows up-to-date spot price, and buy/sell spreads.

http://www.scpm.com/goldsilverbullion.php

[DemonD]

IMHO the only reason to hold physical commodities for a retail investor are the following:

1. You are a coin collector and are not planning on using it as currency.
2. You expect fiat currencies to go to zero.
3. You are an inventor and are using the physical commodity to invent/create some sort of electrical or computer device or are making jewelry.

My guess is that reason #2 is why everyone says hold the physical. I don't see it. I can see a revaluation of fiat currencies (to maybe 1/10th their current level), but at some point you have to redeem your currency for some good or service, or for some further investment. If you are going to redeem gold for further investment, I don't see any reason to hold physical when you can buy ETF's or mutual funds that are gold tracking or gold related. If you feel that in the future you are going to redeem gold for a good or service (let's say food, or having your roof repaired), then by all means, physical gold is a good choice.

A better choice, from what I understand, is silver. With gold you might buy a car, but with silver you can buy things like bread and milk.

To me, a situation where we are using gold and silver coins to pay for bread and cars is one that I cannot fathom at this point. I'm not saying I think the percentage of that happening is zero, just very, very unlikely.

[Spartacus]

IMHO the only reason to hold physical commodities for a retail investor are the following:

The London exchange just defaulted on a base metal delivery couple of months ago. I'll bet that lots of companies (it had to be companies - the price of this commodity is too low, per kilo, for any "civilian" to have lots of it) that had stockpiles were able to negotiate much-higher-than "market" prices for their inventory.

So I'm not talking about paying for your bread with Silver coins, but about the ability of those who sold you paper to not pay a real price, or the maximum that you could get.

The Tokyo exchange has defaulted, apparently several times.

IMHO, the only way to get the highest possible price will be physical - shorts seem to have a lot of power on the exchanges, and can force you out of your position (force you to sell your futures contracts) prematurely.

I'm not fooling myself that I'll be able to call a top, but on the low-probability chance that I do, I don't want to have to settle for what the shorts want to pay.

BTW, My safety deposit box's price is a lot lower than mutual fund fees and futures transaction prices.

The exchanges can and will help the shorts - in Palladium one time, the COMEX demanded a payment greater than the value of the physical metal from the longs and helped relieve the shorts of their obligations.

So what are your options at that point - the COMEX will not allow you to take metal out of the COMEX warehouses, and the COMEX is demanding you pay more money than the metal is worth JUST TO MAINTAIN YOUR CURRENT number of contracts, and in exchange for paying more, there's no guarantee that if you do pay up, that you'll ever be able to get any metal. You hear rumors that companies off the exchange are paying 20% above COMEX prices - you have no metal to sell, only futures contracts that the metal users are not interested in - you can only sell to the shorts, who will buy back at a 20% discount.

They cannot force you out of your position if you own physical.

Remember the Hunts? That was basically a default - several books written about it afterwards claim that it was engineered by the shorts (who got the COMEX to change the rules against the Hunts, and the shorts, along with COMEX insiders, shorted even more aggressively just before the Hunts were pushed) and aided by the politicians.

If I remember the names of the books and their authors I'll post them. One was written by a guy who made several million in Silver on the Chicago board and got out a couple of months before the peak.

The Hunts never BEGAN their campaign as a market-cornering move. They became convinced in the early 70s that the US dollar would decline and they wanted to protect their money against that and against inflation. Later they became convinced that Silver was absolutely the best way to do that, and they ended up almost cornering the market, but the corner was not their primary intent to begin.

BTW - If they had taken physical delivery, like Buffet did, their corner would have worked - they could not have been forced out of the market by unfair COMEX rule changes (allowing COMEX insiders to short more, up to the day the Hunts were killed) or unfair government interference my means of threats of massive physical Silver sales.

[grapejelly]

Every piece of paper is a liability of someone, one way or another. Ultimately there is a rise and fall of confidence in liabilities themselves, a sort of "counterparty credibility index". The only assets that are not liabilities of someone else are tangibles or paid-for real estate. Physical gold and silver are most important in times when doubt in counterparties is on the increase.

Like all things financial, you can't tell when there will be a huge drop in counterparty credibility. So you need to protect yourself by having physical possession of gold.

[rabot10]

Anyone with an opinion of or experience with GoldMoney or the Perth Mint? :confused:

[grapejelly]

Anyone with an opinion of or experience with GoldMoney or the Perth Mint? :confused:

The Perth Mint and the Central Fund of Canada have a long established reputation and are probably fair ways to buy "paper gold."

Goldmoney is not just a method of investing but a method of paying for things with gold. It is probably okay especially if you have a limited amount of money in it.

I am very uncomfortable with "paper gold." I think the time will come one day when investments in paper gold will be worth paper, while investments in real gold will be golden.

I think if you don't hold it, you don't own it, in a fundamental sense. Nothing wrong with paper, but you are mistaken if you feel that paper is a substitute for holding the real thing.

[jk]

the perth mint allows for segregated holdings of numbered bars [for a maintenance fee]. i, too, would like to know whether anyone on the board has personal knowledge and/or experience with perth mint, goldmoney or bullionbank. [not theory and not hearsay. knowldege and/or experience.]

[Finster]

The Perth Mint and the Central Fund of Canada have a long established reputation and are probably fair ways to buy "paper gold."

Goldmoney is not just a method of investing but a method of paying for things with gold. It is probably okay especially if you have a limited amount of money in it.

I am very uncomfortable with "paper gold." I think the time will come one day when investments in paper gold will be worth paper, while investments in real gold will be golden.

I think if you don't hold it, you don't own it, in a fundamental sense. Nothing wrong with paper, but you are mistaken if you feel that paper is a substitute for holding the real thing.

Agreed, GJ. I like CEF (Central Fund of Canada) and have a lot of confidence in it, but nothing is a complete substitute for actual bullion in your physical possession. I just look at physical bullion and "paper" as being for different purposes. You just don't have to choose one or the other in an either-or exclusive proposition. The physical is the ultimate, if-everything-goes-to-you-know-where, security. But adjusting your position as circumstances warrant can be cumbersome, so that's where having something more easily traded comes in.

Physical bullion for security. For position tweaking and trading, there's pool accounts offered by dealers such as Kitco, Fidelitrade, and Monex, Perth Mint certs, Central Fund shares, and the open-end ETFs.

[L.Salvaggio]

I don't know. But I do know that in the physical vs. paper conversation, either it's paper, or you have it in your physical possession.

Anything not in your possession is a paper claim, is it not? A liability of someone else.

There is only one thing that is not a claim on someone else and that is physical commodities in your possession.

If you think an EFT or bullionvault or an option is the same thing as having a physical commodity, you are ignoring the facts.

My experience with the ETF - GLD is that it is easily manipulated and is a wall street paper trade .

I do how ever have been forced to lighten up my deposit box it was getting too heavy , so I look into Bullion Vault ( Not Bullion Bank )
I ask a gold news letter writer his opinion , he said to hold off till he emailed some people in the business , His reply was they seem to be who they say they are no complaints from their (bullion Vault ) clients .
The only draw back is their security rule of once you use your bank account it becomes the only account they will recognize to send your money back to you when you sell ( you can have the gold sent back but that's not practical and you are defeating the purpose of having gold over sea's .

In a emergency you want the cash from the gold sale sent home to your bank , for you to use to keep up your standard of living or to have cash when things get cheap enough to invest in or to buy a house . With out drawing attention to ones self .

I have spoken to Bullion Vault several times on the phone and through emails , they seem to be who they say and I think enough of them to have them hold half of my Bullion . The security sign up and your home Bank account are all done over their secure web site , your Gold is allocated to you and you alone and is free of any liability you receive a public username which you can check you Gold any time against the BRINKS daily Audit with out logging on to the website. You can also check your Good Gold Brinks audit when your logged in to your account .

You have a choice of which Vault to hold the gold at , USA , London or Zurich most customers hold their Gold in ZURICH , also you chose your currency , the U.S. Dollar , The EURO or THE BRITISH Pound all gold held is good gold delivered .

Read what they have to offer they are not a Bullion Bank or paper holders they guarantee it and So does BRINKS who is the security and insurer of the Gold Bullion .

I hope this helps out on were to hold your gold like I said half of mine is in Zurich and half is home in my deposit box .
You never know when the U.S. Treasury my want your gold , you may have to hide it or not get to it for a long time , in this way Bullion Vault sells it for you and wires the money to your bank account .
I had to use my savings to send money to the vault ,then at the right time buy the gold in Zurich then sell my gold at home to replenish my Savings . This process has taken about 6 months ..... I never lost my gold position or money only paid $25.00 per bank wires ..
Regards
L. Salvaggio

[grapejelly]

If the US treasury wants your gold, they'll get it. All they have to so is serve papers on BullionVault. A company like that can't afford to buck governmental authority. Thinking that the different storage facilities will help you is wishful thinking. It is just so hard to cave in against the US Government and the UK government will be backing them up all the way.

I don't think general confiscation is likely. I think taxation and attachment of your gold is more likely -- taxation at punitive "windfall profits" rates, and attachment in order to enforce against you.

If you are not a US citizen and not in the US, then this doesn't affect you of course.

[raja]

As I see it, there are 2 reasons to have gold:

1. For a global financial catastrophe, during which fiat currencies would be worthless.
2. To sell for a profit.

In scenario #1, physical gold and silver will be useful, along with a shotgun and lots of seeds. ETFs, BullionVault, and any other paper gold will be worthless.

Personally, I think this scenario has a very low probability. While investment in some physical gold may be desirable for a “black day”, in my portfolio it will comprise a small portion, appropriate to the low probability I assign this scenario.

In scenario #2, the goal is to profit from a gold bubble. Whether the dollar collapses, and/or there is a global financial crisis, the price of gold will rise dramatically. However, it’s a bubble and will collapse at some point. Profit will only made if one gets out in time . . . .

My concern is that, if the bubble rises and falls rapidly, physical gold may be very difficult to sell. I can’t see how the infrastructure for buying and selling physical gold will be able to handle the huge increase in transactions. Coin dealers would be swamped, and internet-traded gold storage companies like Bullion Vault have a limited client base (customers only trade with customers), which may make it difficult to trade.

Granted, if the bubble is slow to rise and fall, selling physical gold should not be a problem, but who can predict bubble behavior in a time of internet trading and instantaneous global communications. By owning paper gold, there is no risk of not being able to sell. With physical gold there is some risk . . . .

One thing I wonder about . . . . What circumstances would have to exist for paper gold to default? If one accepts the Ka-Poom theory, then there is going to be a bubble. With millions pouring into gold investments during a bubble this seems like an unlikely time for paper gold to default. If one’s strategy is to sell near the top of the bubble, what risk is there in owning paper gold?

I read James Turk’s concerns about GLD (http://www.financialsense.com/editorials/turk/2007/0305.html) (http://www.financialsense.com/editorials/turk/2007/0305.html%29), but he doesn’t present a scenario in which there could be a default . . . and I can't think of one. Any ideas about this?

[jk]

raja, when i read this i thought of you, and your concerns about a sharp peak:

Gold is Ready to Break Important Records
Gold's record high was reached when it popped above $850 in January 1980. That fact is well known. What is less well known is that gold traded at that price for only a few seconds and that a sharp price drop occurred after this peak, which clearly marks the January 1980 high to be a classic 'blow-off' top.
The day it reached that record price, gold actually closed far below at $825.50, which is its all-time closing high. The next day gold literally collapsed, closing at $682.
In fact, gold has closed above $800 on only 3 days - the day of the blow-off peak and the 2 days before. In its entire history, gold has closed in the $700s on only 12 days, of which 3 were in May 2006.
It is even more startling to look at gold's weekly closes. In its entire history, only once has gold closed the end of a week above $800. What's even more surprising is that only once has gold had a weekly close in the $700s, and that one occurred in May 2006.



http://goldmoney.com/en/commentary.php

[EJ]

raja, when i read this i thought of you, and your concerns about a sharp peak:

[b]



http://goldmoney.com/en/commentary.php

To me, a discussion of recent gold prices in the context of 1980 nominal average and peak prices is unconstructive.

I mention in my 2001 piece on gold (http://www.itulip.com/gold.htm), that the gold bubble peaked "at $870 ($1937) on January 21, 1980..." and that the gold price "averaged $612 ($1,363) in 1980."

The numbers in parenthasis throughout the article inflation-adjust gold prices to 2001 dollars, the year the piece was written. The 1980 peak gold price is well over $2,000 current dollars, and averaged over $1,500 in current dollars.

Likely the next gold bubble–if there is one–will produce a blow-off phase followed by a crash typical of all bubbles. This is the speculative play. We are not even close to a top of a bubble process, assuming we are at the early stages of one. I base this assessment on the fact that the price is still less than 1/3 of its previous inflation-adjusted peak price, lack of promotion by the investment banking industry, and still limited investor breadth. The gold bugs are bullish, as they always are. Some non-traditional early adopters have entered the market over the past few years, attracted by rapid price increases. The retail brokerage firm/mutual fund/401K investor community is more aware of gold now than five years ago, but few are participating. Only a couple of my sentiment markers have jumped in. (When my laggard (Moore's Curve) markers finally get in, I'll think about getting out.)

The two questions are: 1) if a new US gold bubble is allowed to develop (that is, if the government doesn't kill it with taxes and other restrictions), what will the new peak price be? Since 2001, I've been saying a new peak is likely in the area of US$2,500 - US$3,000. I explore this at a free seminar americasbubbleeconomy that co-author Bob Wiedemer and I are giving in at the free Hard Assets Conference in NYC, May 14 - 15.

See the announcement here (http://www.itulip.com/forums/announcement.php?f=32).

[grapejelly]

Gold shares as reflected in the XAU and HUI did their best when the overall stock market was in its post-tech Crash bear. Gold of course didn't do badly either.

I can see precious metals becoming a bubble when the stock market is a bear. But as we have observed before, it is arguable that the stock market already is a bear, when you price stocks in other currencies, houses or precious metals.

A bear market meanders all over but over a period of years, in nominal terms, it doesn't go anywhere. It often doesn't crash and it keeps hope and optimism bubbly so that it does the most damage in the long run.

I can see that we are already in a bear quite clearly and the market has hardly gone anywhere in seven years (March 2000 seems to me the peak and the various broad US market indices are either below or not far above the peak then.) So I would expect gold and gold stocks to continue upwards.

It requires broad public particpation to become a bubble. Will this happen? Impossible to know. But I think it is likely to happen regardless of what the US government does. The US government/Fed hates gold because it is anti-fiat and shows reveals the true picture of how bad inflation really is. But what can they do about it?

I say a precious metal bubble is very likely and that it is unlikely the US government can stop it. It will be a worldwide phenomenon. Coincident with the start of the real bubble will be a huge jump in credit spreads from their present all-time lows, and the insolvency of one or more "too big to fail" financial institutions. Maybe one of the US GSEs which after all only have $70 billion in capital (if I remember correctly -- maybe this is just Freddie but it isn't much in any event) versus several trillion in mortgages.

The promotion by the investment industry will be forthcoming as soon as public perceptions change. That might be as soon as later this year, as food prices are set to heat up, and imputed rent for some reason that I forget is supposed to increase CPI due to how it is calculated.

Steve Saville in his superb (paid but a bargain) newsetter www.speculative-investor.com recently said that the Fed will probably raise interest rates as they *must* posture themselves as fighing inflation, and a major gold price increase, telegraphing high inflation as it does, will force them to act in order to maintain their credibility. And this interest rate increase will of course drive gold and gold stocks down.

Regardless of the odds of this (I think the odds are low), the present global boom can go on for *years*. Commodity prices and oil prices have a long way upwards to go. Developing BRIC countries have an enormous amount of headroom in terms of growth. And the US stock market can continue fooling US buy-and-hold citizens for years (it is fooling 99% of the experts already.)

If anything, the US government/Fed will want to lower interest rates in order to prop up the stock market. That's their best bubble bet right now. But the money that is created will flow where it flows, out of the control of anybody. And that is probably good for gold and will be part of what triggers the gold bubble if anything does.

[raja]

jk,

Thanks for posting that.

Seems to give some support to my idea that there will be a need for speed when the gettin' is good, and physical gold may not provide that . . . .

[grapejelly]

jk,

Thanks for posting that.

Seems to give some support to my idea that there will be a need for speed when the gettin' is good, and physical gold may not provide that . . . .

you're no different than I am. I have a religious conviction about precious metals. You have one about TIPS. I marvel at how we can both find supporting logic, rationale and opinion for our positions even though they are poles apart and we are both intelligent (at least I know you are, can't speak for myself :D )!

[Finster]

... The US government/Fed hates gold because it is anti-fiat and shows reveals the true picture of how bad inflation really is. But what can they do about it?

I say a precious metal bubble is very likely and that it is unlikely the US government can stop it. It will be a worldwide phenomenon...

I agree the next bubble will be a hard money bubble. It's already building. And yes, it is unlikely the US government will be able to do anything about it. The problem it faces is that all the actions necessary and sufficient for its emergence are already water under the bridge. The phenomenal production of US dollars from 1995, which underwrote the development of a stock market bubble, and the next great wave of dollar creation earlier this decade, which did the same for the mortgage bubble, can't be undone without creating a deep consumption-led recession. And if history is any guide, that will not occur until the inflation is so obvious in people's daily lives that it becomes the crisis du jour.

The last hard money bubble was borne out of unbridled dollar production and it eventually forced dollar devaluation, and the collapse of Bretton Woods and the Gold Pool. Foreign nations had been supporting the US dollar through much of the 1960s. In 1969, Germany allowed it to fall against the mark. In 1970, Canada let it fall to par with its dollar. In 1971, Germany, Belgium, the Netherlands, Switzerland, and Austria let their currencies float. A few months later, the US closed the gold window to prevent loss of the remaining US gold reserve. Within a few more years, the hard money bubble was unstoppable.

Now we don't have a fixed exchange rate system any more ... with the very notable exception of China. What happens when China finally stops supporting the dollar?

What if Asian exporting nations tire of accepting depreciating paper and want real assets? What if OPEC wants real money? Would the US government be able to buck the entire rest of the world when the rest of the world produces everything the US wants?

[raja]

To me, a discussion of recent gold prices in the context of 1980 nominal average and peak prices is unconstructive.
EJ,

I had posted previously about the possibility of the gold bubble falling so fast that it might be hard to sell physical gold in time, therefore investing in paper gold might be more desirable.

jk read an article about how fast the bubble collapsed in 1980. It was an example of a gold bubble falling rapidly, and in the context of what had been written previously, I found it very pertinent.

Your post did not seem to address this issue of physical vs. paper gold, and the desirability of owning one versus the other when the bubble bursts . . . but it did contain several points that I found very valuable . . . .

When my laggard (Moore's Curve) markers finally get in, I'll think about getting out.
I googled Moore's Curve and came up with the chart below. Is this what you're referring to?

Judging from this chart, would waiting for the laggards be too late . . . assuming that the "Relative % of customers" would represent gold buying customers in an analagous situation?

http://www.linuxjournal.com/articles/lj/0109/6629/6629f1.png

[raja]

I have a religious conviction about precious metals. You have one about TIPS. I marvel at how we can both find supporting logic, rationale and opinion for our positions even though they are poles apart and we are both intelligent (at least I know you are, can't speak for myself :D )! grapejelley,

I think we agree on these things:

1. Gold will probably go up dramatically in the near future.

2. In the face of real inflation (as opposed to the CPI) , TIPS lose money. (I calculated this at around 13% loss over 5 years.)

3. When/if gold goes up, people who have purchased it over the past few years will make a big profit.

I think our main difference is that I am hedging with TIPS against other possible futures in which gold, for whatever reason, does not go up.

Regards intelligence, I'd say that intelligence, knowledge and financial experience are necessary to play this game successfully, and I'm sadly lacking in the latter two . . . which is why I'm hanging around iTulip . . . to learn from the guys who have all three.

[grapejelly]

grapejelley,

I think we agree on these things:

1. Gold will probably go up dramatically in the near future.

2. In the face of real inflation (as opposed to the CPI) , TIPS lose money. (I calculated this at around 13% loss over 5 years.)

3. When/if gold goes up, people who have purchased it over the past few years will make a big profit.

I think our main difference is that I am hedging with TIPS against other possible futures in which gold, for whatever reason, does not go up.
.

I think it's prudent to have some US treasurys also. But I am primarily invested in precious metals. I think EJ's point about perhaps buying some zeros as a hedge is interesting. But 13 week bills are okay.

One thing that I think is a good possibility -- and that is that inflation goes up and long interest rates go up and the boom lasts a lot longer than anybody anticipates. But we can't know what will happen so we have to consider that there *may* be a time when having near-cash is important and having gold and precious metal stocks may not be so good. Right now I can't see that but it is possible so I have to account for it in my investment planning.

[jk]

you're no different than I am. I have a religious conviction about precious metals. You have one about TIPS. I marvel at how we can both find supporting logic, rationale and opinion for our positions even though they are poles apart and we are both intelligent (at least I know you are, can't speak for myself :D )!

you are each advocating different assets which represent only a piece of each of your portfolios. you are emotional about them because they represent fears which, for some reason, are especially salient for each of you. now i would like you each to state your asset allocations in the asset allocation thread [if you haven't already] and we'll see what these passionate advocacies really mean.

[Finster]

you are each advocating different assets which represent only a piece of each of your portfolios. you are emotional about them because they represent fears which, for some reason, are especially salient for each of you. now i would like you each to state your asset allocations in the asset allocation thread [if you haven't already] and we'll see what these passionate advocacies really mean.

It's hard to overstate the importance of looking at a portfolio as a whole. Many investors overlook that, buying individual assets based only on the conviction that they "will go up", and wind up putting together an ad hoc collection of investments that give them a lot of risk without enhancing the prospects for return. But the way your investments work together is vital.

Some investors turn up their noses at the word "diversification", on the belief that it assures mediocrity. That’s true up to a point. There is, however, a sort of "sweet spot" in the curve that as you approach it, you can actually improve your returns as well as reduce your risk. It’s hard to explain without going into length, but just as an example suppose you bought nothing but gold mining stocks, with a view towards holding them long term. Obviously, you are prepared to take on some volatility, and can expect portfolio dips as deep as 50% or more on your way to the promised land.

Next suppose another investor does something similar, except also includes a position in another asset class that, while he expects it to provide merely fair-to-middling returns over that same "long term", tends to move over the shorter term independently of or counter to gold mining stocks. Not only can he moderate the extreme swings in his portfolio, but he can even outperform the first investor. This is because when the first class (gold mining stocks) does its thing and goes into the tank, he has some dry powder with which to take advantage of the fire-sale prices. The guy that was 100% in mining stock to begin with has his hands tied, because he has nothing "high" which to sell and buy "low" with.

Now clearly this presupposes some degree of investor attention, so it’s not quite a free lunch. But if managed with even a modicum of skill, can shift the whole risk/return curve and give you more of the latter even as it delivers less of the former.

[EJ]

EJ,

I had posted previously about the possibility of the gold bubble falling so fast that it might be hard to sell physical gold in time, therefore investing in paper gold might be more desirable.

jk read an article about how fast the bubble collapsed in 1980. It was an example of a gold bubble falling rapidly, and in the context of what had been written previously, I found it very pertinent.

Your post did not seem to address this issue of physical vs. paper gold, and the desirability of owning one versus the other when the bubble bursts . . . but it did contain several points that I found very valuable . . . .


I googled Moore's Curve and came up with the chart below. Is this what you're referring to?

Judging from this chart, would waiting for the laggards be too late . . . assuming that the "Relative % of customers" would represent gold buying customers in an analagous situation?

http://www.linuxjournal.com/articles/lj/0109/6629/6629f1.png

That's the one.

First question to ask yourself is: which are you? Are you risk-philic (early adopter) or risk-phobic (laggard)?

Why are you in the market?

Don't ask as an investor. Ask as an analyst.

Abstract the market. Abstract youself. You are a fly on the wall... even if you have a dog in the race.

Is your sense that there are few skeptics and mostly early adopters in the market? If that is the case, then ask yourself: Why?

Is there a lot of speculative money in the market? See NASDAQ Bubble (http://www.bankrate.com/cnn/news/investing/20000718d.asp?prodtype=invest). Not yet? Or maybe never?

You are riding their money. If there's no they, there's no money.

These will help you understand where the market stands.

We watch the next bubble form together. Maybe in gold, or in something else.