2012/2013 Fiscal Cliff

[bjl584]

I believe you're wrong about the amounts neccessary to participate.

I don't know. But if you are trading in troy ounces, then you will need millions of dollars to jump in the game.

[kv968]

I'm starting with physical gold.

1)I sell gold at todays price. (currently $1658)

2)I invest the proceeds from the sale of gold in a 1 year time deposit.

3)I make an agreement to purchase gold at a given price in the future. (Aug 2013 currently $1668)

4)Convert the CD at maturity

5)Pay for delivery of the gold forward contract with the proceeds from the time deposit.

In the above example as long as the interest rate is above 3/4% a gain can be realised.

Yesterday, for a period of time, gold was in backwardation.

People who wish to earn a return on their gold, and retain the inflation hedge that gold offers can take advantage of something similar.

Private mints, refineries, depositories, and unallocated metal funds all take advantage of leasing.

I don't participate in leasing.
This was a mental exercise to illustrate the mechanics, and justify the gains I claimed were possible from gold leasing.

Gold forward contracts are between individuals, and require no initial outlay of cash.
They don't occur on an exchange, and are exempt from commission fees associated with futures contracts.
They are structured to suit individuals, and not subject to the restrictions of comex futures contracts.

Ok, now I get what you're doing, thanks. I was just confused because you used futures and forward contracts interchangebly in a previous post. However...

The August 2013 price of $1668 that you're looking at is the price in the futures market not a forward contract. Although the same price could be set with a forward contract I assume. The problem I still continue to see, besides the sizes needed to do such a contract, is what if the price of gold is lower than $1668 in Aug 2013? How do you figure that as long as the interest rate is above 3/4% you'll realize a profit? What about the major driving factor of the tranaction...the price of gold itself?

When entering a forward contract, you've made an obligation to buy that gold at the agreed price just as someone has agreed to sell it to you at that price. Do you think the other party will just say "forget it you'll lose money you don't have to buy the gold" if the price is $1500 at that time? That's the whole reason someone enters into a forward contract, to lock in a price.

[Carpenter]

Ok, now I get what you're doing, thanks. I was just confused because you used futures and forward contracts interchangebly in a previous post. However...

The August 2013 price of $1668 that you're looking at is the price in the futures market not a forward contract. Although the same price could be set with a forward contract I assume. The problem I still continue to see, besides the sizes needed to do such a contract, is what if the price of gold is lower than $1668 in Aug 2013? How do you figure that as long as the interest rate is above 3/4% you'll realize a profit? What about the major driving factor of the tranaction...the price of gold itself?

When entering a forward contract, you've made an obligation to buy that gold at the agreed price just as someone has agreed to sell it to you at that price. Do you think the other party will just say "forget it you'll lose money you don't have to buy the gold" if the price is $1500 at that time? That's the whole reason someone enters into a forward contract, to lock in a price.

I own the gold now, it is that I would sell.

Taking delivery is the point.

I will take the profit in ounces of gold.

The point of the exercise was to demonstrate a return on gold without abandoning it's safe haven status.

Gold doesn't "just sit there".

[Carpenter]

I don't know. But if you are trading in troy ounces, then you will need millions of dollars to jump in the game.

Maybe, but as I mentioned, I read of small contracts being filled by a mine in Spokane.
One was under 100toz.

I have inquiries out now to several large dealers.


Off subject; I ran across this earlier. I found it unsettling

Single Best Chart: S&P Rising While Volume Dropping: Video - Bloomberg

Thoughts?

[dontgopoor]

Carpenter - I respect that you've held your ground and have stayed in the conversation and addressed all the comments thrown your way. You have a strategy that you're comfortable with and that strategy seems consistent with the lifestyle that you've described.

I will expect that all the posters in this thread each have different allocations, each suited to what allows them to sleep and based on their total net assets. If you have livestock, live near the swamps, etc., then you have food sources and likely have land assets, a few friends named Smith and Wesson, etc. And gold as a hedge and diversification works for you.

Seems to me a very reasonable plan for your circumstances.

Re: gold, the labels "investment" or "speculation" are really syntactical near-extremes based on an individual's take on projected performance based on their assessment of historical performance.

As in any investment contract, whether gold or other, the other party has the opposite option(in general, yes there are some exceptions), else they would not enter into the exchange. That is, buy because you feel the price will go up and the seller sells because he feels the price will not go up.

I have other comments for the other posters, but will get to those over the weekend or later today.

[bjl584]

Off subject; I ran across this earlier. I found it unsettling

Single Best Chart: S&P Rising While Volume Dropping: Video - Bloomberg

Thoughts?

I agree with Bloomberg. There are fewer large firms controlling the market while a lot of people sit on the sidelines. We are most likely headed for a correction, but I think the market is overbought right now anyway, so a correction would be healthy. Barring some major global event I don't see the markets moving more than 10% down (if they in fact do correct) until after the elections in the fall.

[kv968]

I own the gold now, it is that I would sell.

Taking delivery is the point.

I will take the profit in ounces of gold.

The point of the exercise was to demonstrate a return on gold without abandoning it's safe haven status.

Gold doesn't "just sit there".

I understand that the point was to demonstrate that gold could produce a profit without "just sitting there", but what is your gold doing and what will your gold most likely be doing...? Sitting there since you can't really efficiently implement any of the income producing strategies with a minimal amount of gold.

So for your profit you would sell the gold now and then buy a forward contract saying you'll buy it back at an agreed price. I'm still wondering what you expect to do if gold is trading at a lower price at the settlement time than the repurchase price you agreed upon?

For example (I think this what you're saying), sell the gold now for $1610 and agree to buy it back in Aug 2013 for $1680 or whatever. Take the proceeds from the sale and put it in an interest bearing account. Get say 2%, so you'll have $1642 come settlement time. If gold is trading at the current level in Aug 2013 you're out $38, if gold is trading above $1648 you make money. My question still remains what if it's trading at $1500? You're then out $142. What am I missing here?

[disneysteve]

I understand that the point was to demonstrate that gold could produce a profit without "just sitting there", but what is your gold doing and what will your gold most likely be doing...?

For example (I think this what you're saying), sell the gold now for $1610 and agree to buy it back in Aug 2013 for $1680 or whatever. Take the proceeds from the sale and put it in an interest bearing account. Get say 2%, so you'll have $1642 come settlement time. If gold is trading at the current level in Aug 2013 you're out $38, if gold is trading above $1648 you make money. My question still remains what if it's trading at $1500? You're then out $142. What am I missing here?

Thanks for posting this. I'm not understanding this either. I get how you would make money if the price goes up but what if it goes down? If you've agreed to buy gold at some future date at a designated price, what if it is trading lower at that date?

[kv968]

Thanks for posting this. I'm not understanding this either. I get how you would make money if the price goes up but what if it goes down? If you've agreed to buy gold at some future date at a designated price, what if it is trading lower at that date?

I know this topic is a total offshoot of the original posting and I apologize to the OP, but I'm just curious as to what the thinking in this strategy is at this point?

I trade options and have traded some futures and none of this is making sense to me. I'm just wondering if I'm missing something.

[Carpenter]

For example (I think this what you're saying), sell the gold now for $1610 and agree to buy it back in Aug 2013 for $1680 or whatever. Take the proceeds from the sale and put it in an interest bearing account. Get say 2%, so you'll have $1642 come settlement time. If gold is trading at the current level in Aug 2013 you're out $38, if gold is trading above $1648 you make money. My question still remains what if it's trading at $1500? You're then out $142. What am I missing here?

The $1610 sell price you quote was not the $1658 I used in my example.(check the math again with a $1658 sell price)


This whole thing started as historical stock market gains were being compared to historical gold gains.
We compared time frames of 40, and 60 years.

The point is, continuous leasing of gold at an average of 2% per annum with the proceeds reinvested in physical gold has outperformed the S&P quite handily.

It's just math.

Math that central banks along with, private mints, refineries, depositories, and unallocated metal funds have all taken advantage of.

And, as I have demonstrated, so too can individuals.

[disneysteve]

The $1610 sell price you quote was not the $1658 I used in my example.(check the math again with a $1658 sell price)

You haven't answered the question.

Here's what you posted previously:

1)I sell gold at todays price. (currently $1658)

2)I invest the proceeds from the sale of gold in a 1 year time deposit.

3)I make an agreement to purchase gold at a given price in the future. (Aug 2013 currently $1668)

4)Convert the CD at maturity

5)Pay for delivery of the gold forward contract with the proceeds from the time deposit.

So you are going to sell your current gold holdings for $1,658/ounce. You are going to put that money into a CD. In one year, you are going to buy back the gold at $1,668/ounce. You'll redeem the CD to pay for that transaction. In the process, you'll earn interest on the CD. Currently, 12-month CDs are yielding 1.1% tops.

Now if the price of gold goes up, you're in good shape. You will sell at $1,658 and rebuy at $1,668, will have earned a little bit of interest on your cash and if the price of gold is $1,700 or more, you'll make out there too.

BUT, what if next August the price of gold has dropped to $1,500? You'll have lost $158/ounce. The interest on the CD won't be nearly enough to make up for that loss.

[dontgopoor]

Since my OP has gone into a doomsday/gold direction, I'll go with the flow and post this recent article about gold: Note the last two sentences: GOP: In Gold We Trust - Businessweek

I'll retry later on my original post - there is a real possibility of a dollar devaluation (that does not lead to a so-called doomsday scenario), that can be discussed.

[97guns]

why has this thread gone so askew? maybe because the gold naysayers are trying to poke a hole. i was once a nay sayer as well, i said no way, how can i spend $600 on that little coin as i watched it move to $800 then $1000, $1200 and upwards to $1900 to where we are now. back to the original topic, it has been nothing but a safe haven for me and it will continue to do so.

[disneysteve]

why has this thread gone so askew? maybe because the gold naysayers are trying to poke a hole. i was once a nay sayer as well, i said no way, how can i spend $600 on that little coin as i watched it move to $800 then $1000, $1200 and upwards to $1900 to where we are now. back to the original topic, it has been nothing but a safe haven for me and it will continue to do so.

I could say the same about stocks I have purchased. I bought one stock a couple of years ago for $9. It is now around $15. I bought another for about $20. It is now in the upper 40s. I bought one just a couple of months ago for $7. It is now in the low 8s. And not only have the prices increased, but the stocks have paid dividends that have gotten reinvested so I also own more shares than I started with.

[97guns]

my real estate is my "dividend paying stock" and all my "dividends" are re invested into metal, same principal, different vehicles. hard assets vs' paper assets.