Home—Blog—When will it be time to sell your gold?
Jul 27, 2011, 03:26
Posted byMerryn Somerset Webb
Comments (44)
These are nervous times for us. We started suggesting you buy gold a decade ago. If you did you'll have done very well. Your gold cost $250 an ounce then. It can be sold today for over $1,600 an ounce.
So what's the problem? That now you are all asking us when gold's bull run will end. And telling you when gold will be expensive is a lot harder than telling you it was cheap back in 2002.
Still, there are, I think, two answers. The first is, that gold will peak when monetary and fiscal authorities finally grasp the nettle and start protecting rather than actively working to debase the purchasing power of their currencies – ie when real interest rates turn positive and keep rising from there.
Right now it is hard to find a reason not to hold gold. You aren't getting a real return from any other kinds of money (interest rates are generally below inflation) and both the bond and equity markets are pretty scary places to be.
At the same time, given the lousy GDP growth rates in the UK and the US, along with the ongoing implosion in the Eurozone, it seems reasonable to expect not only QE3 in America and QE2 in the UK but a massive round of something similar in Europe too.
What happens, someone asked me at a conference recently, if everyone starts printing money at once? My guess is that we will see the answer to that unfold in front of us in the next two years and that part of the answer will be that the gold price keeps rising.
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However at some point, things will normalise. Our currencies might not be worth as much as they are today when it happens, but one day interest rates will suddenly be higher than inflation. Most of the big banks – who are all short-term bullish on gold these days – think that point will come relatively soon. They are mostly seeing the Fed tightening in 2012.
I suspect the shift to positive real interest rates is a lot further out than that. If you look back to our chart of the decade you will see that in times of emergency, interest rates can stay low (and negative) for a long time. You will also note that in most tightening cycles, when the rises come they are faster and larger than most people expect. There is, as a reader reminded me this week, rarely any such thing as a 'little inflation'.
The second possibility of course is that the developed world's fiscal and monetary authorities never get a grip and the international monetary system actually does crack, in which case the sky is the limit for gold and I can't even begin to imagine where the peak is.
If you'd like to let your mind wander around the Armageddon scenario for a while, this graphic of US debt – unsustainably big and arguments about the debt ceiling aside, well on the way to getting much, much bigger - should help.
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(27 July 2011, 05:34PM) Complain about this comment
I don't like holding gold other than as a vote against Government's policies. It means that my and other people's money is not being put to good productive use. So as soon as governments credibly value my money I will sell gold.We all expect gold to tumble like it did in the Eighties. Will it though? Hasn't gold by this stage restored it's position in the world's consciousness as a credible store of value after years of being forgotten as a barbarous relic.While always cautious, I suspect gold my top rather than crash when interest rates turn real. Certainly from here it seems hard to see a crash since even if interest rates went sky high wouldn't that lack the credibility of sustainability given current debt levels?
(27 July 2011, 06:02PM) Complain about this comment
show me one shred of evidence that "monetary and fiscal authorities finally grasp the nettle and start protecting rather than actively working to debase the purchasing power of their currencies – ie when real interest rates turn positive and keep rising from there" is anywhere on the horizon.ANYWHERE...............paul volker is not coming back to work anymore than elvis is gonna breathe again.merryn, they are taking this thing to the house.
(28 July 2011, 09:37AM) Complain about this comment
There are dozens of blue chip stocks currently yielding 10% or close to 10% offering excellent real retruns even with inflation at 5%. What does gold offer by way of income? Land or forestry make far more sense. At MW you're obsessed wiht gold to the extent that you miss a great many opportunities that offer better inflation protection and an income.
(28 July 2011, 10:49AM) Complain about this comment
I am not a gold bug alex as I believe that most people holding gold will never sell it, and will watch it peak and fall back down 50% in the coming years long before it reaches 2,000 let alone 3,000 bucks per ounce...But those shares you mention could easily fall 30% in the current market.Frothy is an understatement.
(28 July 2011, 11:03AM) Complain about this comment
Alex,"There are dozens of blue chip stocks currently yielding 10% or close to 10%"Really? Tescos is around 4%, VOD 5%, BAT 4%... the only Blue Chips I can think of that offered 10% over recent times are HMV, Northern Rock, BP, Cable & Wireless... oh...
(28 July 2011, 11:08AM) Complain about this comment
Name me ONE genuine Blue Chip stock that is yielding 10% on today's purchase price where the dividend level is sutainable
(28 July 2011, 11:14AM) Complain about this comment
Alex, do you REALLY believe inflation is running at 5%? I ask because my cost of living is certainly increasing at three or even four times that. Where do you shop?There will be no Volker making a return to central banking. Our governments can't afford to pay their debts now; what would happen if interest rates were even 5%?As assets bought on credit, the price of land and forestry reflect the cost of credit as much as they do their ability to generate steady returns; add to this that they are illiquid, and a tax opportunity for our desperate governments, and you could well see yourself losing money on them.One thing this crisis should have taught us all is that 'value' is in the eye of the beholder, and can vanish in the blink of an eye.
(28 July 2011, 11:48AM) Complain about this comment
Blue Chips paying 10%! In your dreams!!! In this instance Merryn is absolutely right. Everything is cyclical and the US has lost the plot. The USD money supply has, in my view already passed the point of no return and yet QE3 is on the horizon. It is too late ever to get the US budget balanced or reduce the need for the US Treasury to borrow. At some point China will stop buying US bonds (it is already a big buyer of gold bullion.), and the Fed will have to print even more dollars to take up the slack.The only possible outcome to this vast money supply increase is inflation, potentially on a massive scale, TO THE WORLD'S RESERVE CURRENCY. When that realisation hits, what becomes a safe haven - something whose value can't be debauched. Gold.
(28 July 2011, 11:56AM) Complain about this comment
We are in the 11th year of the gold bull market, its not over by a long chalk;Russians and Chinese were not allowed to own bullion in the last gold rush - approx 2 billion new participantsUS QE3 (or something similar) is a shoe inInflation is out of control$3000 $5000 who knows but its got miles to go, although Silver is my choice.Re UK interest rates, what will the BoE do when CPI hits 6%+ in a few months time?
(28 July 2011, 11:58AM) Complain about this comment
Until interest rates are 3% above inflation, gold will continue to rise.The BoE love inflation and they are not going to stop it as they created the mess over the past 12 years.
(28 July 2011, 01:05PM) Complain about this comment
The overwhelming consensus of opinion is clearly that you'd be a fool not to buy and hold gold, if you haven't done so already. The arguments for doing this are convincing and recent events have backed them up. Therefore I intend to sell and short gold.
(28 July 2011, 01:13PM) Complain about this comment
The likes of Alex can stick to his wonderful blue chips. Meanwhile, I'll hold gold as one of my main trades - there is really no need to argue about it and I'm happy to be 'wrong' while I'm raking it in.
(28 July 2011, 02:16PM) Complain about this comment
To turn it around.When would gold be a poor long term investment?Surely only when we have sustained global productivity growth and sustained positive real interest rates. The West in particular thought it had that throughout the decade prior to 2008. In fact it didn't, inflation was temporarily kept in check by China exporting deflation to the West and much of the growth was temporary, bought with debt and wasted on bloated government in the West.I think we either have many years to a decade of debt de-leveraging if Governments do the 'right' thing. Good for gold. Or we have defaults, panic and quite likely: financial blow up. Hard to predict the results of that but I'd as soon hold Gold as anything else in that scenario.If the fabled gold 'bubble' does collapse in the short term then I for one will be enrolling back at Economics school.
(28 July 2011, 03:32PM) Complain about this comment
I haven't traded gold before. What is the best way to do it. Can you recommend any gold shares?
(28 July 2011, 03:55PM) Complain about this comment
Helen, a few ideas: BullionVault to buy and hold physical gold/silver; physical ETFs (eg PHGP) for shorter-term holdings [or, which would be better if you carefully calculate the actual amounts being invested before making a bet, spreadbet gold for short-term trading with no capital gains tax]; and Market Vectors Junior Gold Miners (GDXJ) for a fund of junior shares. Buy on dips so wait a week or two from now.
(29 July 2011, 05:22AM) Complain about this comment
Helen, as mentioned, bullion vault. They give you a gram of gold to get younstarted too. I bought a small amount recently and it's already up about 6%. just wish I had more cash to put in there. Watch spread betting though.. Get it right, make a killing, get it wrong, lose a bundle!
(29 July 2011, 08:45AM) Complain about this comment
most people look at gold with the value of money in the past and cant foresee prices of $3000, $5000 or $10,000 an ounce but fail to see that dollars will be worth allot less in the future. 3000, 5000, 10,000 Lira, Drachma or peseta for an ounce of gold now sounds credible.
(29 July 2011, 09:25AM) Complain about this comment
Hello never bought shares before i cant make up my mind if i should buy gold it looks to me if i am to late could someone please advise is it still worth buying gold i have ten thousand to invest.Thanks
(29 July 2011, 10:14AM) Complain about this comment
I would highly recommend Bullion Vault Helen for gold and silver - I have had an account since September 09. Very easy to use and transparent. I don't think it's too late Cliff too buy gold although you may want to use some of your cash to buy up shares if/when the much predicted 'crash' occurs. Hargreaves and Lansdown are excellent for shares and funds etc.
(30 July 2011, 11:01AM) Complain about this comment
I agree with Bengt, sell on the peaks and buy on the dips, but stick with gold until the economic situation improves, which may be a long time. The trouble is, how to spot the peaks and dips. The charts are useful here, but one is always behind the ideal point. Can any guidance come from the daily movements, small ones having little significance but a large one being a good indicator? If so, what percentage, and what to buy whilst out of gold?
(30 July 2011, 11:39AM) Complain about this comment
There's not really a great deal of gold in the world, and given that both the Chinese and Indians are getting wealthier and love the stuff, the long term price increase for gold is, to my mind, inevitable. It's supply and demand pure and simple.Of course there will be dramatic corrections on the way and we could well see a big dip in the gold price that could last for a long time, but that won't start until US interest rates start to go up. The dollar's value is being inflated away in an attempt to make the US more competive and to lessen the debt burden, so gold should strengthen until there's a positive sign that the US economy is showing real traction.
(30 July 2011, 11:41AM) Complain about this comment
Bought 10 gold sovs recently for £2490 does not look a lot for the money ,but when i bought my first 10 for about £600 i felt the same,If i was getting a good rate of interest on cash i would not be putting my savings into Gold,so when i can get i decent interest rate on savings that will be when i sell at least half my holding,till then the only investment for me is good agriculture land and gold.
(30 July 2011, 12:28PM) Complain about this comment
Over the last month or so I have tried to get a grasp on this whole gold issue and I must admit after reading comments from the nominal to the experienced investor, I'm still in a daze. Being a carpenter and only used to making things fit the gold market is maybe something I'll never get. But at a time in life when you finally get a break with some cash, where do you put your hard earned money? Property...tried that, Banks...tried that! Pensions...gave that up ten years ago. I think I'll be brave and have a go at gold, but should I buy now or when the US sorts out it's mess....see still confused!
(30 July 2011, 01:39PM) Complain about this comment
@Baxter Basics - your contrarian opinion isn't contrarian at all since you seem to be basing it on the readership here. Less than 1% of financial assets are in precious metals and it's only 1% through price appreciation rather than wider uptake. Most people and institutions don't hold gold and never will - look at all the "cash your gold ads"! Inflation adjusted gold is very cheap by historical measures. For gold to back the number of dollars in circulation again like it's done twice this century you're looking at $15K/oz. There is no credible alternative. Real interest rates will remain negative for a long time - the post-Bretton Woods financial system is in cardiac arrest and this time it's global.
(30 July 2011, 03:51PM) Complain about this comment
Heard a funny response to the gold debauchers recently. 'Now let me get this correct, you think cutting down a $5,000 pine tree, grinding it to pulp, putting ink on it and calling it 1B dollars is worth more than an equivalent amount of gold?'Why do people risk their lives to find gold coins lying hundreds of feet under the ocean? Coins that were, by the way, valued long before there was paper money.Seems to me, the only ones critical are those who didn't buy at $250. I'll start selling some of mine at $2500, maybe.
(30 July 2011, 05:41PM) Complain about this comment
Central Banks around the world are creating money out of thin air at the speed of light. Therefore, I will never sell my gold I'll spend it.
(30 July 2011, 10:57PM) Complain about this comment
Gold fever...You cannot eat it, drink it, wear it, live in it, drive in it.... It costs $247 to get it out of the ground yet it sells for $1600. Ask yourselves....who owns the gold mines....who is making the money here....if you have gold, sell now. At very least sell when the world economy looks like crashing. There is plenty of this useless metal and supplies are restricted to keep up the price. I dare you to leave this comment up!
(30 July 2011, 11:08PM) Complain about this comment
My policy is to sell some (Blackrock Gold & General) on the peaks, and buy back on the dips (through an ISA such as ATS or Hargreaves Lansdown who refund all their commissions). ATS accepts orders up to 11.00 UK time: H-L 08.00. Blackrock revalues its prices at 12.00 noon, based largely on the previous day's closing prices in the Americas. Therefore little of any change in the gold price after the American markets close contributes towards the revaluation of units. Any substantial change in the gold price between 2200 and 1100 UK time can be used to advantage by the investor.But I shall not sell the bulk of my physical gold until the Bank of England starts buying it. That will be a big contrarian indicator.
(31 July 2011, 01:07AM) Complain about this comment
@gold fever - you can't eat paper money either. As JP Morgan said, gold is money and nothing else. Its lack of significant utility is precisely why it is such good money - it is a very good numéraire. It's fascinating how many people just don't understand money and why gold is money. Stick to your fractional reserve fiat money. I particularly enjoyed your comment about restricted supplies... anyone who's spent even 1 minute studying gold understands that central banks have been net sellers of gold, and that there are up to 45 ounces of paper gold for every 1 oz of physical. Your position has been touted for 10 years solid and has been wrong for 10 years so I will continue to not listen to your orthodoxy.
(31 July 2011, 08:29AM) Complain about this comment
So the price of gold is largely driven by sentiment. Is that scary or what ?
(31 July 2011, 10:51AM) Complain about this comment
I am looking to invest in gold for the first time and am a complete novice. Is it better to buy gold and keep in person or to open an account with a bullion dealer who will store the gfold on your behalf? If the former, what method of sale is there?
(31 July 2011, 02:31PM) Complain about this comment
@oldwulf Tthe price of fiat currency is also driven by sentiment - in the last 100 years there have been 40 hyperinflations. Hyperinflations are not just about an oversupply of money - they occur when the velocity increases exponentially because people wish to get rid of paper money as soon as they get it.
(31 July 2011, 02:38PM) Complain about this comment
@Higgy - I think it depends on the quantity. If you take possession you don't pay storage fees which could be high (as a %) if we're talking about a small amount. Bullion/coin dealers will buy back from you but obviously they take a commission either way. The only other way would be to sell via ebay or spotmex or something. If you do buy bullion that is stored in a vault make sure the bullion exists and you have title to it (bailment). ETFs and some bullion storage is just paper exposure to the price. Also... avoid any storage that is free - your bullion is probably being loaned/leased out. Have a look here for some thoughts about the benefits/drawbacks of each type:http://www.owngoldandsilver.com/
(31 July 2011, 04:41PM) Complain about this comment
Bullion is too difficult for me but miners of gold have a great future. Our politicians both here, in Europe and the US are only interested in keeping unemployment low, therefore, they will try to inflate their problems away. Cameron's fine words are already looking frayed and we haven't had real problems yet. In my view gold has at least 5 years before it stabilizes.
(02 August 2011, 08:50AM) Complain about this comment
Merryn, you say "You aren't getting a real return from any other kinds of money" but you are - high yielding stocks and of course the safest of all bricks and mortar at today's prices yielding 6%-10% net depending where you are in the world as long as you buy well. Remember, investments produce an income that help people value the investment, speculations are driven by crowd fever and have no income to support the price when the crowd realise they have made a mistake. The gold run was widely predicted but it's still just a speculation not an investment and the end of the run is approaching no doubt.
(02 August 2011, 05:31PM) Complain about this comment
the number of responses here almost rival the number for one of Merryn's UK property doom & gloom pieces! (not saying shes not absolutely right in real terms and possibly nominal terms shortly). Very long precious metals (but since 2004 although more long now!)
(02 August 2011, 05:34PM) Complain about this comment
Stuart those are nominal returns, not real. Bricks & Mortar are terribly cyclical and not safe at all. Stock market returns until 2000 generated returns 3x greater than property over time too. Property is over-owned and overbought. Most people should not buy as they are already overexposed via their inheritance in my view.
(11 August 2011, 09:43PM) Complain about this comment
Think that gold will reach the stratosphere.Trouble is who is going to buy bullion at such a price when you sell? There will be a cut off point for buyers.Nobody is obliged to buy or trade in gold (don't know if paper is same) and I can't imagine the banks, or anyone else buying back gold that they sold for much less.Please correct me if I am skewed on this!
(15 August 2011, 11:45AM) Complain about this comment
@JedIf that were the case, the price wouldn't get up that high, would it? Gold is only worth what people will pay for it. Reluctance on the part of the buyers would prevent gold ever becoming that expensive.If it WERE to get that expensive, it would be solely because there were buyers still willing to pay that kind of price.In a free market, gold will find its own price. Look at the price charts. It's doing it.
(16 August 2011, 12:37PM) Complain about this comment
Everything, including gold, is easy to buy but not always easy to sell-commisssions on buying/selling bullion have to be taken into account. Who is going to buy when it hits $3k?
(16 August 2011, 05:25PM) Complain about this comment
I think we are going to experience a "Flash Bubble".This is how I would describe a sudden acceleration in the acceleration of a bull market-turning-bubble.I've been studying the gold price over the last few decades. And I've been looking at the recent action in the last few weeks.this latest action does not look like a linear blip upwards, it looks more like a rate of change of acceleration. In physics, we call it 'Jerk'. The physicist/mathematician in me is seeing an acceleration in the acceleration, not simply temporary overbuying. The temporal proximity to the recent announcements (e.g., US raising debt ceiling, credit rating downgrading, interest rate pledge, all the crap in Europe) cannot be ignored. These are historical events. The whole world is watching. And more than a few of us are more than a tad angry.
(16 August 2011, 05:26PM) Complain about this comment
I'm feeling $2,000 before the middle of September. I'm thinking, no way, the world isn't that reckless. But I think there's a lot of emotion here. Anger and fear. My rational mind has been fighing my gut instinct to buy, buy, buy since $9,000 or $1,000 an ounce. I guess there's a lot of people like me. I'm wondering if we'll even get a true stage 2 of this bull market. I think we could possibly go straight to stage 3 within months.
(16 August 2011, 05:34PM) Complain about this comment
Think about it. We've got newspapers, multi-channel satellite TV, mobile phones, texting, email, the Internet, forums, Facebook, Twitter, Skype, etc. When gold goes mainstream, it is going to happen so fast, most of us will be caught with our pants down. Look how quickly everybody in the world knew that Michael Jackson was dead. In minutes, people were looking up from their phones in disbelief and discussing the news with perfect strangers. The news - and the rumours - spread like wildfire. The streets were buzzing with it. I'm sure there were people up mountains who knew within minutes. I believe that when gold goes mainstream, it will be in a 'flash bubble'. The limiting factors when the information gets out there will be simply location, wherewithal and supply. Remember how bullion dealers were forced to shut their doors within a day or two of the US debt ceiling anouncements?
A choked off supply will send the price of gold THROUGH THE ROOF, and it will happen in a flash. I'm talking weeks or just a few months. People catch on fast these days.Flash Bubble.
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