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Gordon Pape
Gordon Pape

GOLD AT $10,000?

August 13, 2011 | About:

About the author:

Gordon Pape
Gordon Pape is the best-selling author/co-author of many acclaimed investment books, including the recently-published Sleep-Easy Investing (Viking Canada ). He is also publisher and editor of five investment newsletters, including the Internet Wealth Builder, Mutual Funds Update, The Income Investor, and The Canada Report, which was created specifically for U.S. residents interested in investing in Canada . He is a columnist for several magazines and websites and a frequently quoted media source. He has been a featured speaker at numerous events including the World Money Show in Orlando . His websites can be found at www.BuildingWealth.ca and www.TheCanadaReport.com.

Rating: 2.0/5 (26 votes)


Tonyg34 - 6 years ago    Report SPAM
gold $10,000 reminds me of 1999 when there were articles about Dow 20,000. Would you really rather have a single ounce of inert metal instead of a car? or one year at university? a year's rent (in the midwest, not NYC of course) ?
The Science of Hitting
The Science of Hitting - 6 years ago    Report SPAM
Valuation for equities - attempt to find a range for intrinsic value based on company specific data, via financial statements and industry knowledge about growth, competitive advantage, sustainability of business, etc.

Valuation for gold - make a statement about macro picture ("inevitable outcome of current trends will be hyperinflation"), then pick an arbitrary number without any explanation as to why/how ("$10,000 an ounce within five years")

That's my biggest issue with gold; if it was at 1/2 of today's price or 2x today's price, the argument is exactly the same - just another arbitrary price target...
Nport - 6 years ago    Report SPAM
I've been investing for 50 years. Seen a lot of cycles come and go. In my opinion, Gold will break your heart. Invest in great companies for the long run.
Cogito premium member - 6 years ago
I think that Nixon made a good choice in dropping the gold standard - I don't understand why we would want to limit our money supply by the amount of available gold when our economy is growing exponentially. Wouldn't this cause deflation?

I agree with "The Science of Hitting" that the gold price is arbitrary. After all: what is the fair value of gold? Gold is beautiful, you can make wedding rings from it, you can put it in a safe. But I don't see how to determine a fair value for gold. As long as you cannot assess its intrinsic value, how can you assess whether its price is too low or too high? Actually, as gold doesn't have any important use, I believe that its intrinsic value should be low.

In absence of value, the price of gold is driven by supply and demand, only. Hence, every price is thinkable. You buy gold because there may be historical evidence that the gold price rises when confidence in governments recedes. But that's just psychology - you cannot extrapolate history into the future. What it comes down to is that you buy gold because you believe that other market participants will be willing to pay more for it in the future. That's the greater fool principle, isn't it?

The trend may continue because more and more speculants enter a market when prices rise. But when the trend breaks, the price may fall fast. Without being able to assess gold's value, you will not be able to know when this time comes. That's speculating, not investing.

Superguru - 6 years ago    Report SPAM
"what is the fair value of gold?"

I am not sure if USD has a fair value either. It appears to be on the whims of Fed and their printing capabilities.

"In absence of value, the price of gold is driven by supply and demand, only. Hence, every price is thinkable"

replace by gold by USD above and it will hold true. Though Gold can go up and down both, USD apparently can only devalue.

Being a reserve currency gives USD somewhat of a special status though.

Please correct me if my thinking is faulty.

( I am taking USD as an example because I am American but same thinking applies to other currencies as well.)
Mo77 - 6 years ago    Report SPAM
According to the following Bloomberg article back in 2009.

Gold hit a then-record $873 an ounce in 1980.

Using the U.S. Labor Department’s inflation calculator, that equates to $2391 in today's dollar.

Based on that the current price of $1744, puts the metal at 28% off it's all-time inflation-adjusted high.

That being said I would be wary of any asset that everyone is buying.

John Templeton once said : "The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."

Gold seems to me to operates in the exact opposite way.

As far as currencies go, there is little doubt any dollar in any currency in the future will have less purchasing power than it does now.

The problem with gold is that it strikes me as a something that you cant measure the value.

It is an raw material that has zero utility as opposed to copper, oil or coal.

It's price and perceived value is derived from this historical perception that strikes me as bizarre.

Why isn't silver deemed more valuable? Is it because silver is gray and gold is shiny yellow?

Shares in high quality businesses bought at reasonable valuations should retain their value far better than something like gold, which seems to me to be the ultimate speculation.

The full link to the article:


Ranjitsudan - 6 years ago    Report SPAM
Only rationale of buying gold is that it is hedge against super inflation and paper currency. Since almost all the major currency have lost value in last decade or two- gold has risen in value and will continue to rise in value until central banks stop printing money and diluting their currency.

Other reason for gold to continue to rise because of demand from central banks. US dollar is no more sound proof reserve so they are looking to gold as alternative. China is looking to float yuan and would buy gold to back their currency. Given it has limited supply, Gold will continue to rise.

Nobody knows what is $$$ value for per ounce of gold but this has always been a case historically. One way to get idea of valuation is to check its historical value against US dollar/money in circulation. SO you can take gold price in 1970-80 and compare it against money in circulation during that decade. Then compare this against current gold price (adjusted for inflation) against money in circulation. I am sure you will find gold is undervalued.
Tonyg34 - 6 years ago    Report SPAM
A long-standing rule of thumb among gold enthusiasts is that an ounce of gold should equal the cost of one high-quality man's suit. (this goes back to ancient Rome, when an ounce of gold allegedly was enough to purchase a top-of-the-line toga.)

A silly debate? Maybe. But this is the central issue any investor faces when dealing with gold. Gold generates no income. It is, in a sense, a perpetual zero coupon bond. So valuing it isn't easy. It does, however, act as a store of value over significant periods of time. And for that it shouldn't be dismissed out of hand. However, I would prefer to buy when the asset class is out of favor, which is certainly not the case today.
Ranjitsudan - 6 years ago    Report SPAM
Well, not many fund manager, common people hold gold as an investment! so certainly not in favor.

Case for gold is simple, its a currency which can't be diluted easily because you can't print out of thin air like US dollar. If Federal Reserve keeps printing money, gold will keep going higher.

Anyhow: if you think gold is in bubble, check gold price against swiss franc or australian dollar, it flat. Its only rising in EURO and of course in USD!

Anon - 5 years ago    Report SPAM
A lot of really ignorant comments there. "zero utility"??!!!! ever loked at the contacts on your mobile phone batty? sim card? SD / memory card? PC cards? cpu connectors? Every piece of modern technology needs gold. NO GOLD = NO COMPUTERS. Still think its a useless metal?

One day you'll wake up and realise those poeces of paper with numbers printed them are just pieces of paper with numbers printed on them. I don't think there is a fiat currency in the world that has survived much longer than a century. People look back over the last 50 years and think thats how the world has always been. The 20th century was a huge anomaly in human history: Exponential population growth, exponential environmental degradation, central bank inflation. The federal reserve system is less than 100 years old and has resulted in currency losing around 97% of its value.

Further when the fractional reserve started currency was backed by 20% hard currency i.e. Gold. Not only has that dropped to 5%, its also turned into 'Tier 1 capital', which includes bank stocks as part of the value (actually thats the main part). So in the event of a bank ceasing operation you would only get 5c for every one of your dollars they are holding. If their share price plummeted (which it would in a crisis) you would be lucky to get 1c.

Which asset is really worthless?

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