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Gold Hits another all time High


1LIFE2LIVE

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$ 1,440.00/oz. & Silver @ $ 37.35/oz.

 

Looks like we'll be at $ 1,500.00/oz. & $ 40.00/oz. sooner rather than later.

 

Crazy times we are living in.

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Gold is cool. No 1099 forms, no account numbers, no social security numbers and keeps up with inflation, the perfect underground investment.

 

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Is the value of gold going up or is the value of money going down?

Spot on! The trouble with raw highest/most $/largest grossing/etc kind of measures is that they're not inflation adjusted. We're having kittens over gas at $3.50 a gallon and it's still relatively cheap vs my dad's time - I earn an order of magnitude more than he did (actually more than that in fact) so paying an order of magnitude more for things like gas or gold isn't that big a deal...while paying an order of magnitude less for anything that has been electronicized! And no matter what, life is better & safer (remember steel dashboards in the car...kids getting polio...etc...). Our current feelings of despair are vastly undeserved.

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John Ranalletta

Of course, you're right; but I'd rather see things as they could be relative to what they are than what they are relative to what they used to be...idealization vs. rationalization.

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Until gold gets over $2250k/oz, it has not hit an all time high. It hasn't even kept up with inflation over the last 30 years. On the other hand, AAPL has risen over 3500% in the last 14 years.

 

 

 

Gold_inflation.jpg

 

 

 

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John Ranalletta

Wish I knew where it will end. While not surprised, I am disheartened by the number of CRE foreclosures in Indy. Weekly, a major office, shopping center or apartment complex is foreclosed by a highly-leveraged lender.

 

Wonder how the current and future decrease in value will finally afffect all asset classes, including precious metals; or when we'll see the bottom which I believe is still 3-5 years hence.

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Wish I knew where it will end. While not surprised, I am disheartened by the number of CRE foreclosures in Indy. Weekly, a major office, shopping center or apartment complex is foreclosed by a highly-leveraged lender.

 

Wonder how the current and future decrease in value will finally afffect all asset classes, including precious metals; or when we'll see the bottom which I believe is still 3-5 years hence.

From what I hear you're spot on in terms of the timeframe - we're still 3-5 yrs from a real turning point. My friends in Commercial Real Estate are saying that is the big elephant that none of the commercial banks & regulators want to talk a lot about but could dwarf the residential housing collapse impact. Even the residential market isn't recovering despite the end of the recession - I believe I saw that new housing sales were down significantly again last month to an all time record low. Even growth numbers in the past few months where any growth in sales were recorded are growth vs. the prior year which was in the tank - general consensus amongst the economists is that we're 3+ years from getting back to pre-recession residential real estate market strength. A commercial meltdown would likely crater even that delayed recovery.

 

On the other hand, even our poor people live better than 90% of the world's population so I'm not depressed & wringing my hanky out from tears. Even with significant downturns in almost all sectors, we're still living better than most of our current peers and certainly most of our predecessors on this planet.

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John Ranalletta
A commercial meltdown would likely crater even that delayed recovery.
The CRE meltdown will take down the regional banks. So far, the residential crash hit the big-mortgage makers. Many of the strip malls, apartments and office buildings were financed by regional and local banks who can not stand the write offs. Example: Star Bank of Indiana recently foreclosed on a $23M loan for a partially-completed condo project near us. It is virtually unsaleable, i.e. who would buy one unit in a defunct project or who would buy the entirety? Even at $23M, the project is overpriced. At what point do these banks become under capitalized and unable to pass even the phony fed stress tests?

 

I think we'll see another TARP in the near future as well as an auto bailout, more QE, a weaker US$, higher bond prices as well as strengthening precious metal markets as confidence wanes.

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Dave McReynolds

Commercial real estate may be on a little more solid foundation than residential real estate. Around here, most commercial real estate is sold based on capitalizing rental income from the property. Not too much is sold on spec. Granted, rents can fall off, shopping centers can empty out when the stores go broke, which can cause the value of those properties to fall below the mortgage. This is exacerbated when the mortgage covenants contain clauses allowing them to be called when such things happen. I have seen other cases where the property was operating just fine, receiving enough rents to fund the mortgage and operating expenses, but when the mortgage came due the mortgagor wouldn't renew it (unlike residential mortgages, commercial mortgages are generally written for a 5 year term) and no other source of financing could be found. Those are the ones that puzzle me: why would a bank foreclose on a property that is current on its loan, when there are so many other properties around that are delinquent? The reason I'm given is that bank regulators or banking regulations require that the bank's loan portfolio as a whole be reduced, presumably due to other problems the bank might be having.

 

So commercial real estate by no means has smooth sledding, but values are at least based on something that is real, generally speaking.

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Dave McReynolds

As long as I'm digressing from the original theme of gold prices (my little hoard is doing just fine, thank you!), I might as well mention another thing that is puzzling me.

 

Why does a public agency like CALPERS invest in leveraged real estate anyway? A significant part of CALPERS losses over the past few years has been properties where CALPERS partners with someone else to develop leveraged real estate. The properties' values have fallen below the mortgage, and in some cases repossesed.

 

With all the billions CALPERS has to invest, wouldn't it be more prudent if they just bought properties outright? Then the worst that could happen would be the returns on that property might drop if rents dropped, but there would still be some kind of return, rather than a loss?

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Why does a public agency like CALPERS invest in leveraged real estate anyway?

For the same reason individuals do (or did anyway) – a quest for higher returns. Their BODs bought into the same story (real estate can only go up) that [nearly] everyone else did.

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Commercial real estate may be on a little more solid foundation than residential real estate. Around here, most commercial real estate is sold based on capitalizing rental income from the property. Not too much is sold on spec. Granted, rents can fall off, shopping centers can empty out when the stores go broke,

 

So commercial real estate by no means has smooth sledding, but values are at least based on something that is real, generally speaking.

Lots of other folks funded CRE - like insurance companies & pension funds who wanted the safety of something "real". Those entities are subject to the solvency tests of 50 states as well as rating agencies. Anyone of whom could get spooked & require divestiture of the assets to "protect" policyholders from bad investments.

 

Here in the northeast lots of office buildings are going vacant as the renters go out of business due to the economy or credit crunch, replacements aren't coming in and vacancies are skyrocketing. Even companies doing well are not growing bodies (& office space) but are squeezing more productivity out of fewer staff...or they've found they can build/buy new for less than the costs of sitting in a highly leveraged & mortgaged building so move on leaving a giant vacancy not to be refilled.

 

Lots & lots of speculative money tied up in commercial paper based on CRE mortgages. Commercial rents aren't any more "real" than residential rents or mortgage payments.

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Dave McReynolds

Commercial rents aren't any more "real" than residential rents or mortgage payments.

 

One of the problems that led to the housing price bubble was that it was based primarily on speculation. In other words, the price of a house was not a function of the rents it could generate. What you say about commercial real estate is true: when the rents fall, the commercial values fall and that can cause problems for owners, lenders, and investors. However, if housing prices had been tied to some measure of the income a unit could generate, they wouldn't have risen as high as they ultimately did. Hopefully, since commercial real estate is linked to the income it can generate, it might not have quite so far to fall.

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Until gold gets over $2250k/oz, it has not hit an all time high. It hasn't even kept up with inflation over the last 30 years. On the other hand, AAPL has risen over 3500% in the last 14 years.

 

 

 

In November of 2000 I'd just sold a convertible Corvette and was flush with cash. I had a chance to buy Apple stock @ $11/share but it was languishing, the local Apple manufacturing facility had just closed down and sold out to a third party assembler, and the Company's future looked somewhat dim. So, being the smart guy I am, I invested in Intel ($42/share) and a few other tech stocks. Needless to say had I opted for AAPL I could easily have enough money to buy every member on this site the motorcycle of their dreams and still live happily ever after. I wouldn't, of course :P , but wanted to use that to illistrate my point.

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John Ranalletta
Hopefully, since commercial real estate is linked to the income it can generate, it might not have quite so far to fall.
It's probable that lots of the CRE expansion wasn't tied to rents but to wishful thinking and easy money.

 

In many cases, they were priced to perfection, not a multi-year 50% vacancy rate.

 

The generalized euphoria that drove home building spilt over into CRE developers' offices, too. In many towns, the empty space left by bankrupt residential builders/developers and their associated companies (lumber & fab yards, design showrooms, offices, etc.) is huge.

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Who'd thunk?

 

Is Tyler Durden the same guy from "Fight Club"?

 

If true, which we already know that there is "inflation" regardless of what we are sold, sure sounds like it's going into overdrive soon, Very Soon.

 

PM's, commodities/natural resources should continue to perform...

 

AGQ, APA, BAL, CEO, MCP & WLT have been working out just fine.

 

"The Trend is your friend" so the saying goes and this trend has and continues to have momentum...

 

It will be interesting, Very Interesting watching the markets as QE2 comes to an end in June...

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John Ranalletta

When buying gold turns out to be a good thing, it's like being really happy you bought life insurance. They will have the most value when you're in deep doodoo.

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Three days later Gold @ $ 1,476/oz.; Silver over $ 40/oz. at this rate gold will be over $ 1,500/oz. by the end of the quarter.

 

Been an amazing ride so far.

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Just got back from the UK....they have it over there already!

Prices are getting out of sight...

Oh! And they don't accept gold (nor can you swipe it at checkout) at Walmart stores ;)

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John Ranalletta

The government is taking a hint from the Career Builder ads and has fixed the falling currency problem:

 

DXY%20Liesman_0.jpg

 

$14 of the today's price increase in gold and 38 cents of the inc in silver was due to a weaker dollar. If you have both PMs and dollars on hand in equal portions, you're even.

5536.jpg.91a5bdbcbc8ffc8839183b287f4d744e.jpg

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  • 2 weeks later...
John Ranalletta

The top may be in sight:

The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion and is storing the bars in a New York vault, according to the fund’s board.
The university's rationale is that the gold held in buillion banks and comex is over committed, i.e. sold many times over; and, having gold "in hand" is the only form of suitable ownership. Wonder if they bought at the top or if the projections of $3k/ounce for gold and $100 for silver is probable.

 

 

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Dave McReynolds

Wonder if they bought at the top or if the projections of $3k/ounce for gold and $100 for silver is probable.

 

Gold prices are a function of three things, which I list in what I believe to be the order of significance:

 

1. Hoarding internationally and in the US as a result of political/economic uncertainties sets the fundamental demand for gold. As confidence increases in economies, gold will be sold and the proceeds invested in more productive endeavors. Demand for gold as a hedge against political/economic uncertainty is not really affected by the price of gold very much, as it is an investment of last resort; i.e. people don't see any other safe place to put their money.

 

2. The strength of the US dollar adds or subtracts a layer to the price we have to pay when we buy gold in US$, as it adds or subtracts a layer to the price we pay for everything else produced outside the US.

 

3. Speculation adds an artificial layer to the price. The impact of speculation is probably the easiest of the three to predict, as it is purely cyclical. When people get nervous that the bubble has expanded too far, the bubble will collapse.

 

Right now, all three factors are forcing the price of gold up. IMHO, speculation has about run its course, as people are beginning to get nervous. As for the other two factors, I dunno....

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John Ranalletta

There's speculation that well-to-do Chinese will revert to gold when the r/e market crashes. That could be very interesting.

Naturally, this also means that the plunge in real estate ASPs, confirmed everywhere, but most pronounced in the capital, is set to continue. This, according to JPM's Jing Ulrich, means that with real estate no longer an attractive asset bubble, the "mass affluent" Chinese will be forced to invest in gold and alternative property investments. From Dow Jones: This group "has seen its investment options sharply affected by restrictive housing measures" such as property taxes, increases in down-payment requirements, and raised interest rates, "since these households possess sufficient capital to purchase investment property, but do not have the same degree of access to investment vehicles such as private equity funds and retail property" as the super-rich, she says, adding that equities, gold and alternative property investments are therefore the key beneficiaries."
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Point: PM's have been and continue to be a great addition to a diversified investment portfolio especially considering todays global economic/political climate.

 

 

 

 

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Accumulated physical back in 2006 & 2007; Got into AGQ a few months back and it has more than doubled in that time :).

 

With Gold at another all time high today/silver over $ 46/oz and AGQ over $ 340/share at these levels I'd pass. I do have a trailing stop in place to lock in the gain for AGQ.

 

 

 

From a long term value/investor perspective at the moment barely anybody thinks Residential Real Estate which has been in the dumps of recent and has pulled back substantially from there highs - depending on location, location, location just might be worth a look if you're in the market...

 

Now where did I put that crystal ball :)

 

0.02

 

 

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Wow, I didn't think about buying real estate now that that market is depressed. That would probably be a good idea, too.

 

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John Ranalletta

Remember cash for

wherein perfectly good cars were destroyed to create demand?

 

Get ready for Dozing for dollars to destroy perfectly good homes.

 

I wonder if they're signing up volunteers. I'd like to volunteer my neighbor's house.

 

 

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John Ranalletta

You're probably more expert than me, but in a free fall, a trailing stop can be taken out without the shares trading because it takes two to make a transaction. Without a buy side, trailing stops are useless, but I agree with your strategy. Another strategy might be to buy put options or an inverse index, but that insurance premium is much higher.

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Got stopped yesterday morning @ $ 351.60 on AGQ = Freaking AWESOME !

 

Gonna ride out the coming correction (10-25% ?)in PM.

 

We shall see and it will be very interesting watching the markets as QE2 starts to come to an end...

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The only reason I wouldn't buy gold right now is that it is becomming popular with average investors (zigging while the herd is zagging has been very good to me over the years). But, that is the only reservation I would have. Interest rates are near zero and can only rise, debt is silly-high, inflation in commodities is brisk, and there is no reasonable expectation of fiscal discipline in government anytime soon. Watch the bond market. It will tell you all that you need to know. If China dumps their treasuries, hold on to your hat.

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