Dollar still dropping (new gold highs)

[SteveA]

As many people have predicted, the dollar continues to be a bad investment.

You could compare the value of a dollar against many things but gold is a rather standard currency too:

http://www.kitco.com/

Gold is now at $541/oz.

Over the last year, gold has risen ~27% versus the dollar. Over the last 5 years, it's increased about 104%.

Is gold worth a lot more than it was a year ago? Not really. Is the dollar worth a lot less than it was a year ago? Yep.

There are probably other tangible assets that would make a decent investment, but I'd recommend people not hang on to too many dollars. It still seems likely to sink quite a bit more. Housing prices have been stabilizing, but that's under conditions of a dropping dollar value, so even the housing market is beginning to come back down (as seems inevitable).

I don't normally recommend buying things that rise, but I do recommend selling IOUs/dollars, while they're still worth something. There's not as much of a downside to tangible assets compared to the dollar. There's probably something better than gold to invest in if you keep your eyes open, but don't invest in anything that's a target for assest seizures or taxes, just to be safe.

Anyway, have fun, and invest safely.

[tinybear]

China's delinking the RMB from the USD.

[bishop]

steve... if you're interested, there's GLD:

http://finance.yahoo.com/q/pr?s=GLD


there's also IAU:

http://finance.yahoo.com/q/pr?s=IAU

[Samildanach]

Huh tell me that this afternoon. I was shorting the GBP/USD when they announced the abominable UK trade figures. Things were going nicely up until that point....sigh. :(

I am hoping to stay in and recoup my losses when the US trade deficit data comes out on Thursday...or is that Friday :eek:

[bishop]

you play the forex, eh?

i've only "gamed" with it.. it's much too volatile for my liking. and correct me if i'm wrong, but you usually have very large positions when you're playing that game - right?

i know that hedge funds actually win on about 1% of their bets, believe it or not.. and they use huge black boxes to crunch numbers for them. can't imagine a private player having much success. (you've been doing this for a while now?)

[Samildanach]

Yes I have been doing it for quite a while, that being a few years. Its more of an art than a science. I use it to supplement my income at work, well thats untrue I make more off my trading than I do working but still I enjoy what I do so I keep doing it .
I day trade it, it can be risky but really its all about your system, if you are finding it too volatile then it is because you are not compensating for the volatility by reducing your position size . For instance you never bet more than 0.3%usual - 0.5%max of your capital on a trade. In traditional trading on the indexes they would say 1%max, but in traditional markets you don't need to survive 200 point swings on occasion ie 200 x 0.3% = %66 of capital in a worst case scenario.

I also apply the law of inertia to the market. ie if no external force is acting on the market (ie news) then it will continue to move in the same direction. So most of the time I avoid news announcements like the plague, today I was unlucky ,but because I only EVER bet with the long term trend it will rescue me. The GBP/USD pair will go lower than 1.7600 tommorrow, the long term trend has already re-asserted itself after everyone having a frenzy over the bad data.

http://newsvote.bbc.co.uk/1/shared/f.../one_month.stm

As for what hedge funds win or dont win I dont know but I do alright and thats all that matters. All I know is black boxes are only as good as the humans behind them who do the programming and basing systems on historical data which is probably what they do is IMO not necessarily a good way of trading.

[RickSp]

The smart money, so to speak, seems to think that gold has peaked. I won't claim to hold an informed opinion on whether that is true or not. On the other hand I am very pleased that I didn't move into gold the last time it ran up like this back in 1980 when it reached $850 an ounce.

Adjusted for inflation gold would have to be trading at $2,500 an ounce to reach 1980s levels. That suggests either that gold is currently undervalued or that gold's volatility can be deceptive. I suspect the latter is the case.

[bishop]

good for you samil... i've played around with forex trading and made a good amount of money using the simulated games, but it's still a little too risky for my blood. what's the minimum amount that you can place on an investment?

heh.. i've been tempted to do it for real myself. i definitely was trained to do it thanks to grad school.. but i can see what it'd do to me, turning me into a freak of a day trader. i'm bad enough when it comes to stocks (i rarely hold on to something longer than a week.).. been getting monthly returns of 5.33%, annualized that could become a 64% return, so i must be doing something right. at the end of the day, it just comes down to whether/not you can win the bet.

the one nice thing about forex, though, is that the long-term trends are fairly predictable. for instance, everyone knew that 2005 was going to be the year of the yen - and it was.


as for gold.. it's traditionally done well when real interest rates are close to or below zero. (real interest rates = 3-month t-bill minus CPI) the average 3-month rate is expected to be about 4.4%.. i can't get solid numbers for CPI, but it's about 3% and expected to continue to decrease due to the stalled impact of increased interest rates (rate hikes typically take about a year to fully matriculate into the economy).

so, i think it's still a good investment idea.. i'd never buy into the commodity itself, because that's way too volatile for my blood, but the GLD/IAU eft's seem to be good alternatives.


personally, i'm waiting for the rally to happen once the fed officially stops raising interest rates.. i'm also looking at PXE - an energy exploration eft.. nobody's finding new wells and suddenly oil companies have a reason to dig deeper into existing wells. the digging companies (not to be confused with distributors like exxon) have been making a killing in recent years.

[SteveA]

Quote by: Samildanach Huh tell me that this afternoon. I was shorting the GBP/USD when they announced the abominable UK trade figures. Things were going nicely up until that point....sigh. :( I am hoping to stay in and recoup my losses when the US trade deficit data comes out on Thursday...or is that Friday :eek:

I don't think speculating on currencies is a very good investment, for a few reasons. 1) It's a contractual investment. You don't truly hold anything of value that you can guarantee is redeemable. 2) These resources are more publicly visible and likely to have profits taxed. 3) Most currencies, just like the dollar, have little real intrinsic value so they tend to have large downsides if problems occur. 4) Just like precious metals, they don't provide any real return. In general it seems they're likely to just retain value but not significantly increase in value (saying one currency is increasing in value versus another currency doesn't mean a lot if you still can't physically buy more with the currency that didn't drop in value).

[bishop]

you don't just enter into contracts in the forex, you can also purchase "units" just like they were individual shares of stock.. you can trade spot, futures, forwards (which no individual investor can actually afford) and options.

heh.. and intrinsic value.. spoken like a true gold bug.

[SteveA]

Quote by: bishop you don't just enter into contracts in the forex, you can also purchase "units" just like they were individual shares of stock.. you can trade spot, futures, forwards (which no individual investor can actually afford) and options.

Shares and stocks are similarly based upon contractual agreements. What I'm referring to is that most currency traders don't physically hold anything that really guarantees redemption unless they truly purchase physical currency (which would be a good idea for any long term currency investment). So you're still relying on 'the system' to remain stable in order to cash in on the investment.

For example, you might purchase $3,000 of some currency, but you simply hold an obligation from the company/bank you had the transaction with. It's not impossible that political events or problems with records (like corrupted data) could leave you holding an unreedemable IOU.

heh.. and intrinsic value.. spoken like a true gold bug.

Nawww, I'm just a guy who likes getting paid for his work I'm certain there are better investments than gold but most all of them depend on political stability.

[Samildanach]

So far I am being forced to eat my own words about the pair progressing down through 1.7600 but the day isn't over yet.

[Samildanach]

I disagree, for me the forex is the only thing I would ever really consider trading....guess it suits my personality to a degree though. The forex market is extremely liquid and I don't really believe in the concept of intrinsic value, I think that the concept in and of itself is a bit outdated.
There are also other ways of investing in the forex. For example in the UK we have spread betting companies which have online interfaces but they 'technically' place bets for you. Its a derivative market but it allows you to enter much smaller position sizes and profits are tax free as technically under uk law its classed as a bet rather than an investment. The spreads are a little higher typically between 4 to 10 points depending on how fast the market is moving. But when the market typically moves 75 - 150 points in a day a five point spread is negligible.

[Samildanach]

One more thing, with all the talk about the dollar devalueing.......oil countries diversifying into the Euro.....I am thinking about taking out a mortgage next year...I am wondering what currency to take it out in...If I take it out in US dollars then...if the currency devalues hugely I could cut my mortgage time in half by refinancing in another currency after the devaluation....see any flaws in that theory?...apart from the probably huge interest rate hikes that would occur if other countries started to flood the market with dollars?

[bishop]

Quote by: steve Shares and stocks are similarly based upon contractual agreements. What I'm referring to is that most currency traders don't physically hold anything that really guarantees redemption unless they truly purchase physical currency (which would be a good idea for any long term currency investment). So you're still relying on 'the system' to remain stable in order to cash in on the investment. For example, you might purchase $3,000 of some currency, but you simply hold an obligation from the company/bank you had the transaction with. It's not impossible that political events or problems with records (like corrupted data) could leave you holding an unreedemable IOU.

i see your point, as unrealistic as i think it is..

in reality, most of these forex spots have deposit insurance. in some cases, the insurance is better than what is required by law.

[RickSp]

Quote by: Samildanach One more thing, with all the talk about the dollar devalueing.......oil countries diversifying into the Euro.....I am thinking about taking out a mortgage next year...I am wondering what currency to take it out in...If I take it out in US dollars then...if the currency devalues hugely I could cut my mortgage time in half by refinancing in another currency after the devaluation....see any flaws in that theory?...apart from the probably huge interest rate hikes that would occur if other countries started to flood the market with dollars?

I can't speak of the UK but the transaction costs of non-US dollar denominatd mortages in the U S anyway are quite high. It seems likely that non-Sterling or Euro mortgages in the UK might also have high transaction costs. Have you priced any? It occurs to me that it might cost less to hedge with currency options or futures.

[Samildanach]

I actually have been buying property in Latvia and they offer mortgages in Lats,Euros and US dollars. I am assuming therefore I could take a mortage in US dollars and later borrow the equivalent amount in Euros and just pay it off.

[RickSp]

If the rates across currencies are competitive, it might make sense.

[bishop]

too bad you can't just buy foreign bonds (or can you?)... i wouldn't mind having some from cash cow china.

[Samildanach]

Nothing from china AFAIK.