Author Topic: Precious Metals  (Read 86885 times)

Imanuels

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Re: Precious Metals
« Reply #700 on: October 02, 2020, 03:14:26 AM »
Campbell Harvey has recently communicated interesting observations concerning gold price:
"Currently the real, inflation-adjusted, price of gold is almost as high as it was in January 1980 and August 2011. Since 1975, periods of high real gold prices have occurred during periods of elevated concern about high future price inflation. Five years after the real price peaks in January 1980 and August 2011 the nominal (real) prices of gold fell 55% (67%) and 28% (33%), respectively."

Their published paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
Youtube video: https://www.youtube.com/watch?v=7dpdbhOmODI

celerystalks

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Re: Precious Metals
« Reply #701 on: October 02, 2020, 07:44:52 AM »
Campbell Harvey has recently communicated interesting observations concerning gold price:
"Currently the real, inflation-adjusted, price of gold is almost as high as it was in January 1980 and August 2011. Since 1975, periods of high real gold prices have occurred during periods of elevated concern about high future price inflation. Five years after the real price peaks in January 1980 and August 2011 the nominal (real) prices of gold fell 55% (67%) and 28% (33%), respectively."

Their published paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
Youtube video: https://www.youtube.com/watch?v=7dpdbhOmODI

We sort of have an everything bubble going on now though. Stocks have extraordinary high P/E ratios and yields on fixed income are at historic lows.

TomTX

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Re: Precious Metals
« Reply #702 on: October 02, 2020, 10:16:40 AM »
Campbell Harvey has recently communicated interesting observations concerning gold price:
"Currently the real, inflation-adjusted, price of gold is almost as high as it was in January 1980 and August 2011. Since 1975, periods of high real gold prices have occurred during periods of elevated concern about high future price inflation. Five years after the real price peaks in January 1980 and August 2011 the nominal (real) prices of gold fell 55% (67%) and 28% (33%), respectively."

Their published paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3667789
Youtube video: https://www.youtube.com/watch?v=7dpdbhOmODI

We sort of have an everything bubble going on now though. Stocks have extraordinary high P/E ratios and yields on fixed income are at historic lows.

Well, of course! The Fed is pushing trillions of dollars into the money supply. Barely still single digit trillions anymore!

$2.3T in loans:

https://www.federalreserve.gov/newsevents/pressreleases/monetary20200409a.htm

$7T in bond purchases:

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm

maizefolk

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Re: Precious Metals
« Reply #703 on: October 02, 2020, 10:29:08 AM »
So a technical question that doesn't change the facts on the ground, just what we call them. TomTX I'm guessing you probably know the answer better than I do.

Is it actually a bubble if what is driving up prices is a bigger supply of money chasing after a fixed quantity of assets? I've always thought of bubbles are being driven by people being willing to pay more for something because the price has gone up in the past and they expect the price to keep going up in the future.

In real terms I'm not confident the price of stocks will go up in the near-to-medium term, but I (and I'd guess lots of other folks) are still buying them when I get my paycheck every month because real assets are less likely to go down (in real terms) than money sitting in the bank.

Edit: to be clear again, I'm not disagreeing with what is happening, just with what we call the phenomenon we're observing.

TomTX

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Re: Precious Metals
« Reply #704 on: October 02, 2020, 11:52:47 AM »
I see a "bubble" as anything pushing up one or more asset classes unreasonably high.

Due to the massive cash injection looking for places to be that pay better than 0.5% from a savings account, it's not a stock bubble or bond bubble or PM bubble - it's an everything bubble.

Of course, you're never absolutely sure it's a bubble until after it pops ;)

waltworks

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Re: Precious Metals
« Reply #705 on: October 02, 2020, 12:11:23 PM »
Yeah, but by that standard, any form of general inflation is a "bubble". 

I think you have to have buying purely on the basis that everyone else is doing it to qualify as a classic bubble, and I'm not sure this situation qualifies. These prices could be the "new normal" if the other circumstances (government propping up of markets) continue forever, right?

-W

maizefolk

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Re: Precious Metals
« Reply #706 on: October 02, 2020, 01:56:27 PM »
That's a fair enough point. But here I'd argue that, given the amount of new money created by the fed, stocks and bonds and real estate may not be unreasonably high. There's a good, non-speculative reason for assets to be more expensive and offer lower returns: more money chasing after a fixed supply of assets to buy.

Anyway, we could call it an everything bubble. We could call it asset inflation. Hmm, actually I take that back, I guess there is a difference we could see between the two looking back on this era from the future.

If this is an everything bubble, it'll eventually pop and the prices of assets will all fall. If it is asset price inflation, it may never pop, and we'll just be in for years and years of below normal returns.

big_owl

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Re: Precious Metals
« Reply #707 on: October 02, 2020, 03:01:00 PM »
BOOYAH just ordered another 1oz gold panda this week, should be here today.  Another gold coming to add to my scrooge mcduck pile. 

celerystalks

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Re: Precious Metals
« Reply #708 on: October 02, 2020, 04:20:27 PM »
BOOYAH just ordered another 1oz gold panda this week, should be here today.  Another gold coming to add to my scrooge mcduck pile.

Awesome!


celerystalks

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Re: Precious Metals
« Reply #709 on: October 02, 2020, 08:01:59 PM »
That's a fair enough point. But here I'd argue that, given the amount of new money created by the fed, stocks and bonds and real estate may not be unreasonably high. There's a good, non-speculative reason for assets to be more expensive and offer lower returns: more money chasing after a fixed supply of assets to buy.

Anyway, we could call it an everything bubble. We could call it asset inflation. Hmm, actually I take that back, I guess there is a difference we could see between the two looking back on this era from the future.

If this is an everything bubble, it'll eventually pop and the prices of assets will all fall. If it is asset price inflation, it may never pop, and we'll just be in for years and years of below normal returns.

So would you say that this time its different?

waltworks

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Re: Precious Metals
« Reply #710 on: October 02, 2020, 09:41:41 PM »
It's always different. We're just being dorks about semantics.

-W

celerystalks

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Re: Precious Metals
« Reply #711 on: October 03, 2020, 07:24:44 PM »
It's always different. We're just being dorks about semantics.

-W

Okay. But my question is: is it different this time?

Classical_Liberal

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Re: Precious Metals
« Reply #712 on: October 13, 2020, 04:05:58 PM »
If this is an everything bubble, it'll eventually pop and the prices of assets will all fall. If it is asset price inflation, it may never pop, and we'll just be in for years and years of below normal returns.

Adding to this thought process, we also need to think in terms of redistribution.  Who owns real assets, who has been the benefactors of their rise in real/relative value vs less durable goods and services.  IOW, why are asset prices skyrocketing and we are not seeing the corresponding price increases via inflation?

It can be summed up as velocity, but the more fundamental factor is why is velocity so low?  Mostly, IMO, it's because the new money is not getting into the hands of the lower 80% via wages/income who would be more likely to spend it on anything other than real assets.  I don't think this is viable long term either socially or economically.   If we end up redistributing, I think price inflation follows, which will take care of the overvalued real assets.  If we don't, I think real asset prices continue to increase as more liquidity enters the system, and will decrease if the monetary supply is reduced. 

As potential evidence of my theory, remember Q4 2018?  The fed tried to reduce its balance sheet and the equity markets reacted violently downward.  There were no earnings or fundamental other reasons for that large correction.  The fed responded by reversing course and equities recovered.

ChpBstrd

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Re: Precious Metals
« Reply #713 on: October 14, 2020, 08:17:06 PM »
If this is an everything bubble, it'll eventually pop and the prices of assets will all fall. If it is asset price inflation, it may never pop, and we'll just be in for years and years of below normal returns.

Adding to this thought process, we also need to think in terms of redistribution.  Who owns real assets, who has been the benefactors of their rise in real/relative value vs less durable goods and services.  IOW, why are asset prices skyrocketing and we are not seeing the corresponding price increases via inflation?

It can be summed up as velocity, but the more fundamental factor is why is velocity so low?  Mostly, IMO, it's because the new money is not getting into the hands of the lower 80% via wages/income who would be more likely to spend it on anything other than real assets.  I don't think this is viable long term either socially or economically.   If we end up redistributing, I think price inflation follows, which will take care of the overvalued real assets.  If we don't, I think real asset prices continue to increase as more liquidity enters the system, and will decrease if the monetary supply is reduced. 

As potential evidence of my theory, remember Q4 2018?  The fed tried to reduce its balance sheet and the equity markets reacted violently downward.  There were no earnings or fundamental other reasons for that large correction.  The fed responded by reversing course and equities recovered.

^This is about the only theory that makes sense at this point. Most of the cash printed over the past 12 years has been locked up in the accounts of wealthy investors, some overseas, who buy financial assets rather than things that count toward CPI or PPI. The steady demand for assets has kept treasury rates low and corporate financing costs low while the steady lack of consumer demand has kept the CPI low. The result would have been years of low returns had PE ratios not inflated over the years. Imagine our conversations had the S&P's PE ratio stayed around 15 or 20.

https://www.multpl.com/s-p-500-pe-ratio

Moving on to what comes next, we must ask ourselves what could cause wealthy investors to stop buying assets, if inflation can be kept low forever by a lack of trickle-down.
1) A severe recession that wipes out their earnings could do it, but only temporarily.
2) An obvious asset bubble could persuade some of them to reallocate from stocks to treasuries, and this move would lower interest rates, creating a self-reinforcing risk of deflation.
3) Third, a loss of confidence in the US dollar could cause them to seek safer havens overseas.

I'm unconcerned about #1.

#2 will eventually become a factor, probably before #3 occurs. We are already above the PE ratios of 1999, which were once spoken of as the definition of insanity and are now casually explained away.

Regarding #3, I'm agnostic about Ray Dalio's theory of imperial cycles and reserve currencies, but I must admit his analysis is compelling and the alternative hypothesis seems to be something like "things will continue like they are forever, even if the US finances itself and pays all its people solely by printing currency", or essentially MMT. Dalio is careful to point out that imperial decline usually occurs on a scale of generations, but it could be that the world moves a lot faster now. The Soviet Union went from superpower to basket case in about 8 years. One could argue that the US is in about year 4. Meanwhile, China is doing interesting things with crypto that could be their bid for an alternative reserve currency, issued by an infrastructure-rich surplus-producing superpower that makes most of the things people want to buy (i.e. the US's position in about 1960). 

https://www.multpl.com/s-p-500-pe-ratio

« Last Edit: October 15, 2020, 01:26:40 PM by ChpBstrd »

maizefolk

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Re: Precious Metals
« Reply #714 on: October 14, 2020, 09:09:36 PM »
I feel like I must be missing a logical step in case #2. Wouldn't wealthy investors reallocating from stocks to treasuries drive interest rates further down rather than back up?

Radagast

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Re: Precious Metals
« Reply #715 on: October 14, 2020, 11:09:49 PM »
If this is an everything bubble, it'll eventually pop and the prices of assets will all fall. If it is asset price inflation, it may never pop, and we'll just be in for years and years of below normal returns.

Adding to this thought process, we also need to think in terms of redistribution.  Who owns real assets, who has been the benefactors of their rise in real/relative value vs less durable goods and services.  IOW, why are asset prices skyrocketing and we are not seeing the corresponding price increases via inflation?

It can be summed up as velocity, but the more fundamental factor is why is velocity so low?  Mostly, IMO, it's because the new money is not getting into the hands of the lower 80% via wages/income who would be more likely to spend it on anything other than real assets.  I don't think this is viable long term either socially or economically.   If we end up redistributing, I think price inflation follows, which will take care of the overvalued real assets.  If we don't, I think real asset prices continue to increase as more liquidity enters the system, and will decrease if the monetary supply is reduced. 

As potential evidence of my theory, remember Q4 2018?  The fed tried to reduce its balance sheet and the equity markets reacted violently downward.  There were no earnings or fundamental other reasons for that large correction.  The fed responded by reversing course and equities recovered.

^This is about the only theory that makes sense at this point. Most of the cash printed over the past 12 years has been locked up in the accounts of wealthy investors, some overseas, who buy financial assets rather than things that count toward CPI or PPI. The steady demand for assets has kept treasury rates low and corporate financing costs low while the steady lack of consumer demand has kept the CPI low. The result would have been years of low returns had PE ratios not inflated over the years. Imagine our conversations had the S&P's PE ratio stayed around 15 or 20.

https://www.multpl.com/s-p-500-pe-ratio

Moving on to what comes next, we must ask ourselves what could cause wealthy investors to stop buying assets, if inflation can be kept low forever by a lack of trickle-down.
1) A severe recession that wipes out their earnings could do it, but only temporarily.
2) An obvious asset bubble could persuade some of them to reallocate from stocks to treasuries, and this move would raise interest rates, creating a self-reinforcing cycle.
3) Third, a loss of confidence in the US dollar could cause them to seek safer havens overseas.

I'm unconcerned about #1.

#2 will eventually become a factor, probably before #3 occurs. We are already above the PE ratios of 1999, which were once spoken of as the definition of insanity and are now casually explained away.

Regarding #3, I'm agnostic about Ray Dalio's theory of imperial cycles and reserve currencies, but I must admit his analysis is compelling and the alternative hypothesis seems to be something like "things will continue like they are forever, even if the US finances itself and pays all its people solely by printing currency", or essentially MMT. Dalio is careful to point out that imperial decline usually occurs on a scale of generations, but it could be that the world moves a lot faster now. The Soviet Union went from superpower to basket case in about 8 years. One could argue that the US is in about year 4. Meanwhile, China is doing interesting things with crypto that could be their bid for an alternative reserve currency, issued by an infrastructure-rich surplus-producing superpower that makes most of the things people want to buy (i.e. the US's position in about 1960). 

https://www.multpl.com/s-p-500-pe-ratio
4. Congress passes a law requiring the Fed to immediately sell all non-Treasury assets and prohibiting them from ever buying any again. The Fed is limited to 10% max of any Treasury issue and must immediately sell anything over that. That 10% treasuries and interest rates will be the only tools they have going forward. To stoke inflation cash will be issued automatically equally and electronically to all citizens, and no TARP or other government rescues will ever be allowed. That will turn things around pretty fast :D.

celerystalks

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Re: Precious Metals
« Reply #716 on: October 15, 2020, 04:31:39 AM »
I feel like I must be missing a logical step in case #2. Wouldn't wealthy investors reallocating from stocks to treasuries drive interest rates further down rather than back up?

Yes. i agree with @maizefolk here.. Perhaps I am missing something as well.

My understanding is that a reallocation from stocks to treasuries would bid up the price of treasuries thereby driving yields down further.

ChpBstrd

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Re: Precious Metals
« Reply #717 on: October 15, 2020, 01:29:19 PM »
I feel like I must be missing a logical step in case #2. Wouldn't wealthy investors reallocating from stocks to treasuries drive interest rates further down rather than back up?

Yes. i agree with @maizefolk here.. Perhaps I am missing something as well.

My understanding is that a reallocation from stocks to treasuries would bid up the price of treasuries thereby driving yields down further.

Corrected! I got that backward. I also clarified that the self-reinforcing risk would be deflation, which would be a signal to get out of stocks because companies are about to cut prices and earn a lot less.

vand

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Re: Precious Metals
« Reply #718 on: October 16, 2020, 02:05:21 AM »
If this is an everything bubble, it'll eventually pop and the prices of assets will all fall. If it is asset price inflation, it may never pop, and we'll just be in for years and years of below normal returns.

Adding to this thought process, we also need to think in terms of redistribution.  Who owns real assets, who has been the benefactors of their rise in real/relative value vs less durable goods and services.  IOW, why are asset prices skyrocketing and we are not seeing the corresponding price increases via inflation?

It can be summed up as velocity, but the more fundamental factor is why is velocity so low?  Mostly, IMO, it's because the new money is not getting into the hands of the lower 80% via wages/income who would be more likely to spend it on anything other than real assets.  I don't think this is viable long term either socially or economically.   If we end up redistributing, I think price inflation follows, which will take care of the overvalued real assets.  If we don't, I think real asset prices continue to increase as more liquidity enters the system, and will decrease if the monetary supply is reduced. 

As potential evidence of my theory, remember Q4 2018?  The fed tried to reduce its balance sheet and the equity markets reacted violently downward.  There were no earnings or fundamental other reasons for that large correction.  The fed responded by reversing course and equities recovered.

^This is about the only theory that makes sense at this point. Most of the cash printed over the past 12 years has been locked up in the accounts of wealthy investors, some overseas, who buy financial assets rather than things that count toward CPI or PPI. The steady demand for assets has kept treasury rates low and corporate financing costs low while the steady lack of consumer demand has kept the CPI low. The result would have been years of low returns had PE ratios not inflated over the years. Imagine our conversations had the S&P's PE ratio stayed around 15 or 20.

https://www.multpl.com/s-p-500-pe-ratio

Moving on to what comes next, we must ask ourselves what could cause wealthy investors to stop buying assets, if inflation can be kept low forever by a lack of trickle-down.
1) A severe recession that wipes out their earnings could do it, but only temporarily.
2) An obvious asset bubble could persuade some of them to reallocate from stocks to treasuries, and this move would lower interest rates, creating a self-reinforcing risk of deflation.
3) Third, a loss of confidence in the US dollar could cause them to seek safer havens overseas.

I'm unconcerned about #1.

#2 will eventually become a factor, probably before #3 occurs. We are already above the PE ratios of 1999, which were once spoken of as the definition of insanity and are now casually explained away.

Regarding #3, I'm agnostic about Ray Dalio's theory of imperial cycles and reserve currencies, but I must admit his analysis is compelling and the alternative hypothesis seems to be something like "things will continue like they are forever, even if the US finances itself and pays all its people solely by printing currency", or essentially MMT. Dalio is careful to point out that imperial decline usually occurs on a scale of generations, but it could be that the world moves a lot faster now. The Soviet Union went from superpower to basket case in about 8 years. One could argue that the US is in about year 4. Meanwhile, China is doing interesting things with crypto that could be their bid for an alternative reserve currency, issued by an infrastructure-rich surplus-producing superpower that makes most of the things people want to buy (i.e. the US's position in about 1960). 

https://www.multpl.com/s-p-500-pe-ratio

I think that you are in danger of putting the cart before the horse. It's not so much wealthy investors buying assets causing inflated asset prices.. it's cheap money that causes assets to go up that then creates wealthy investors.  ZIRP gives access to cheap capital which creates a lot of the jobs you see today; companies can fund more projects and and need to employ people to bring them to fruition.

It's all a virtuous circle, but when the next true downturn arrives it will all go into reverse.

The last 40 years have been so fantastic for paper assets largely because of the secular disinflationary trend in developed economies due to technology, globalisation and many other factors, but all good things must come to an end, and we have seen the start of that with an extension of nonsensical policies that would only have made sense in years past being enacted in an attempt to keep us on the same trajectory.  You cannot logically expect people to "invest" their money into an instrument that will yield a guaranteed negative return.. there is no rhyme or reason why any rational investor would do that; the only reason is that they think someone else will accept an even more negative return, but that is where the world is today.
« Last Edit: October 16, 2020, 02:19:27 AM by vand »

ChpBstrd

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Re: Precious Metals
« Reply #719 on: October 16, 2020, 10:14:19 AM »
If this is an everything bubble, it'll eventually pop and the prices of assets will all fall. If it is asset price inflation, it may never pop, and we'll just be in for years and years of below normal returns.

Adding to this thought process, we also need to think in terms of redistribution.  Who owns real assets, who has been the benefactors of their rise in real/relative value vs less durable goods and services.  IOW, why are asset prices skyrocketing and we are not seeing the corresponding price increases via inflation?

It can be summed up as velocity, but the more fundamental factor is why is velocity so low?  Mostly, IMO, it's because the new money is not getting into the hands of the lower 80% via wages/income who would be more likely to spend it on anything other than real assets.  I don't think this is viable long term either socially or economically.   If we end up redistributing, I think price inflation follows, which will take care of the overvalued real assets.  If we don't, I think real asset prices continue to increase as more liquidity enters the system, and will decrease if the monetary supply is reduced. 

As potential evidence of my theory, remember Q4 2018?  The fed tried to reduce its balance sheet and the equity markets reacted violently downward.  There were no earnings or fundamental other reasons for that large correction.  The fed responded by reversing course and equities recovered.

^This is about the only theory that makes sense at this point. Most of the cash printed over the past 12 years has been locked up in the accounts of wealthy investors, some overseas, who buy financial assets rather than things that count toward CPI or PPI. The steady demand for assets has kept treasury rates low and corporate financing costs low while the steady lack of consumer demand has kept the CPI low. The result would have been years of low returns had PE ratios not inflated over the years. Imagine our conversations had the S&P's PE ratio stayed around 15 or 20.

https://www.multpl.com/s-p-500-pe-ratio

Moving on to what comes next, we must ask ourselves what could cause wealthy investors to stop buying assets, if inflation can be kept low forever by a lack of trickle-down.
1) A severe recession that wipes out their earnings could do it, but only temporarily.
2) An obvious asset bubble could persuade some of them to reallocate from stocks to treasuries, and this move would lower interest rates, creating a self-reinforcing risk of deflation.
3) Third, a loss of confidence in the US dollar could cause them to seek safer havens overseas.

I'm unconcerned about #1.

#2 will eventually become a factor, probably before #3 occurs. We are already above the PE ratios of 1999, which were once spoken of as the definition of insanity and are now casually explained away.

Regarding #3, I'm agnostic about Ray Dalio's theory of imperial cycles and reserve currencies, but I must admit his analysis is compelling and the alternative hypothesis seems to be something like "things will continue like they are forever, even if the US finances itself and pays all its people solely by printing currency", or essentially MMT. Dalio is careful to point out that imperial decline usually occurs on a scale of generations, but it could be that the world moves a lot faster now. The Soviet Union went from superpower to basket case in about 8 years. One could argue that the US is in about year 4. Meanwhile, China is doing interesting things with crypto that could be their bid for an alternative reserve currency, issued by an infrastructure-rich surplus-producing superpower that makes most of the things people want to buy (i.e. the US's position in about 1960). 

https://www.multpl.com/s-p-500-pe-ratio

I think that you are in danger of putting the cart before the horse. It's not so much wealthy investors buying assets causing inflated asset prices.. it's cheap money that causes assets to go up that then creates wealthy investors.  ZIRP gives access to cheap capital which creates a lot of the jobs you see today; companies can fund more projects and and need to employ people to bring them to fruition.

It's all a virtuous circle, but when the next true downturn arrives it will all go into reverse.

The last 40 years have been so fantastic for paper assets largely because of the secular disinflationary trend in developed economies due to technology, globalisation and many other factors, but all good things must come to an end, and we have seen the start of that with an extension of nonsensical policies that would only have made sense in years past being enacted in an attempt to keep us on the same trajectory.  You cannot logically expect people to "invest" their money into an instrument that will yield a guaranteed negative return.. there is no rhyme or reason why any rational investor would do that; the only reason is that they think someone else will accept an even more negative return, but that is where the world is today.

Interesting point. I can think of the following ways low rates could increase asset prices:

1) Reduce corporate cost of debt, allowing for higher earnings in any given capital structure that includes debt.
2) Allowing for higher corporate leverage at any given level of interest expense / revenue.
3) Allowing for a greater range of profitable corporate investments, e.g. projects with an expected ROI of only 4% are profitable if you can fund them at 2.5%.
4) Lower rates on consumer debt reduce disincentives for consumption, increasing aggregate demand, and thereby increasing earnings expectations..
5) Lower the cost of buying assets on margin, even if the expected returns are low, which increases demand for low-yielding assets.
6) Lower the cost of buying assets on margin, creating the expectation that others will try to do the same, and setting up a rational greater-fool expectation.
7) Reduces the perceived risk of an Argentina style debt crisis, allowing for higher allocations of risky assets.
8) There Is No Alternative to risky assets for pension funds, endowments, insurance companies, retirees, fund managers, etc. TINA could push investors with mandated levels of returns to allocate more aggressively than they’d like, increasing demand for risky assets.

The question is: what is the relative influence of 1-4, which are genuinely positive economic effects that would in theory trickle down to the economic classes who spend most of their income, versus 5-8, which are influences on the marketplace demand for risky paper assets?

If you feel 1-4 are bigger factors than 5-8, an explanation is due for why inflation has not picked up.

If you feel 5-8 are the bigger factors, that explains where the money went (asset price increases) and why inflation did not increase (monetary velocity in the real economy did not increase because so much cash went into paper assets instead of consumption or corporate growth).

Perhaps most of the benefit of 1-4 was obtained years ago, and by 2015-2019 when unemployment was as low as it’s ever been, corporate growth potential was also near its max. As factors 1-4 were maxed out, factors 5-8 kicked in to absorb the liquidity being added by the Fed and so we got low inflation with rapid asset price growth.

vand

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Re: Precious Metals
« Reply #720 on: October 21, 2020, 03:14:11 AM »
If this is an everything bubble, it'll eventually pop and the prices of assets will all fall. If it is asset price inflation, it may never pop, and we'll just be in for years and years of below normal returns.

Adding to this thought process, we also need to think in terms of redistribution.  Who owns real assets, who has been the benefactors of their rise in real/relative value vs less durable goods and services.  IOW, why are asset prices skyrocketing and we are not seeing the corresponding price increases via inflation?

It can be summed up as velocity, but the more fundamental factor is why is velocity so low?  Mostly, IMO, it's because the new money is not getting into the hands of the lower 80% via wages/income who would be more likely to spend it on anything other than real assets.  I don't think this is viable long term either socially or economically.   If we end up redistributing, I think price inflation follows, which will take care of the overvalued real assets.  If we don't, I think real asset prices continue to increase as more liquidity enters the system, and will decrease if the monetary supply is reduced. 

As potential evidence of my theory, remember Q4 2018?  The fed tried to reduce its balance sheet and the equity markets reacted violently downward.  There were no earnings or fundamental other reasons for that large correction.  The fed responded by reversing course and equities recovered.

^This is about the only theory that makes sense at this point. Most of the cash printed over the past 12 years has been locked up in the accounts of wealthy investors, some overseas, who buy financial assets rather than things that count toward CPI or PPI. The steady demand for assets has kept treasury rates low and corporate financing costs low while the steady lack of consumer demand has kept the CPI low. The result would have been years of low returns had PE ratios not inflated over the years. Imagine our conversations had the S&P's PE ratio stayed around 15 or 20.

https://www.multpl.com/s-p-500-pe-ratio

Moving on to what comes next, we must ask ourselves what could cause wealthy investors to stop buying assets, if inflation can be kept low forever by a lack of trickle-down.
1) A severe recession that wipes out their earnings could do it, but only temporarily.
2) An obvious asset bubble could persuade some of them to reallocate from stocks to treasuries, and this move would lower interest rates, creating a self-reinforcing risk of deflation.
3) Third, a loss of confidence in the US dollar could cause them to seek safer havens overseas.

I'm unconcerned about #1.

#2 will eventually become a factor, probably before #3 occurs. We are already above the PE ratios of 1999, which were once spoken of as the definition of insanity and are now casually explained away.

Regarding #3, I'm agnostic about Ray Dalio's theory of imperial cycles and reserve currencies, but I must admit his analysis is compelling and the alternative hypothesis seems to be something like "things will continue like they are forever, even if the US finances itself and pays all its people solely by printing currency", or essentially MMT. Dalio is careful to point out that imperial decline usually occurs on a scale of generations, but it could be that the world moves a lot faster now. The Soviet Union went from superpower to basket case in about 8 years. One could argue that the US is in about year 4. Meanwhile, China is doing interesting things with crypto that could be their bid for an alternative reserve currency, issued by an infrastructure-rich surplus-producing superpower that makes most of the things people want to buy (i.e. the US's position in about 1960). 

https://www.multpl.com/s-p-500-pe-ratio

I think that you are in danger of putting the cart before the horse. It's not so much wealthy investors buying assets causing inflated asset prices.. it's cheap money that causes assets to go up that then creates wealthy investors.  ZIRP gives access to cheap capital which creates a lot of the jobs you see today; companies can fund more projects and and need to employ people to bring them to fruition.

It's all a virtuous circle, but when the next true downturn arrives it will all go into reverse.

The last 40 years have been so fantastic for paper assets largely because of the secular disinflationary trend in developed economies due to technology, globalisation and many other factors, but all good things must come to an end, and we have seen the start of that with an extension of nonsensical policies that would only have made sense in years past being enacted in an attempt to keep us on the same trajectory.  You cannot logically expect people to "invest" their money into an instrument that will yield a guaranteed negative return.. there is no rhyme or reason why any rational investor would do that; the only reason is that they think someone else will accept an even more negative return, but that is where the world is today.

Interesting point. I can think of the following ways low rates could increase asset prices:

1) Reduce corporate cost of debt, allowing for higher earnings in any given capital structure that includes debt.
2) Allowing for higher corporate leverage at any given level of interest expense / revenue.
3) Allowing for a greater range of profitable corporate investments, e.g. projects with an expected ROI of only 4% are profitable if you can fund them at 2.5%.
4) Lower rates on consumer debt reduce disincentives for consumption, increasing aggregate demand, and thereby increasing earnings expectations..
5) Lower the cost of buying assets on margin, even if the expected returns are low, which increases demand for low-yielding assets.
6) Lower the cost of buying assets on margin, creating the expectation that others will try to do the same, and setting up a rational greater-fool expectation.
7) Reduces the perceived risk of an Argentina style debt crisis, allowing for higher allocations of risky assets.
8) There Is No Alternative to risky assets for pension funds, endowments, insurance companies, retirees, fund managers, etc. TINA could push investors with mandated levels of returns to allocate more aggressively than they’d like, increasing demand for risky assets.

The question is: what is the relative influence of 1-4, which are genuinely positive economic effects that would in theory trickle down to the economic classes who spend most of their income, versus 5-8, which are influences on the marketplace demand for risky paper assets?

If you feel 1-4 are bigger factors than 5-8, an explanation is due for why inflation has not picked up.

If you feel 5-8 are the bigger factors, that explains where the money went (asset price increases) and why inflation did not increase (monetary velocity in the real economy did not increase because so much cash went into paper assets instead of consumption or corporate growth).

Perhaps most of the benefit of 1-4 was obtained years ago, and by 2015-2019 when unemployment was as low as it’s ever been, corporate growth potential was also near its max. As factors 1-4 were maxed out, factors 5-8 kicked in to absorb the liquidity being added by the Fed and so we got low inflation with rapid asset price growth.

Bonds are the base of the investing pyramid.. they're the baseline which dictates what risk premia each increasingly riskier asset classes can command.

Lower interest rates can only happen if investors are willing to accept the lower future returns in fixed income. In a rational world, this then means are also willing to accept lower future expected returns (ie higher valuations) across other risky asset classes.

Check out the chart on this video at 10:40: https://www.youtube.com/watch?v=WFiJw6QoTL4

It should be clear why official policy has targetted the 2% inflation rate and interest rates manipulated to meet this end, because that is the goldilocks zone for risky assets.
« Last Edit: October 21, 2020, 03:27:44 AM by vand »

vand

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Re: Precious Metals
« Reply #721 on: December 04, 2020, 12:28:08 AM »
The PM complex has had a fuse lit under it. Look at silver in the last 48hrs.


I bought some silver miners back in April just as a bit of a hedge. 
Wish I had bought more, they are two+, approaching three bagger status. 

Silver ATH was $48 in 2011.  It hit $26 today.  It could have a lot of room to run.  Or not.

Yep, silver has been the metal on the move lately. I actually hold more silver than gold, so happy with the current action. Silver is like a non-expiring call option on gold; in flat and falling markets it disappoints, but when the PM complex starts going up then silver starts to catch up and eventually explode higher. I think silver will probably challenge its ATH roughly if and when gold manages to challenge its 2011 high in inflation-adjusted terms, which today would be around $2400.

Right now though Platinum is the best buy in the sector, and by some considerable way. I'm personally only accumulating Pt and GDX miners at the moment.

How do you know Pt is the best in the sector? Pt is unlike gold. Gold is a metal of luxury and has only trivial industrial usage vis a vis the available supply.  Pt OTOH is primarily an industrial metal, as is silver.  But, unlike silver, PT has many reasonable industrial substitutes among the other platinum group metals.

It's just analysis from a quant perspective, not from a fundamental perspective.

My guess is that people will eventually want to buy it for its properties as a precious metal, not an industrial one. Or another way of looking at it is that there is huge potential demand there if and when people decide they do want to own it as a precious metal. That is what usually happens with all assets classes as they go in and out of favour - people find a reason not to own it when it is going down, and then find a reason to own it when it is going up. The asset itself doesn't really change.

The Platinum trade is starting to look very promising.

Now at a 4yr high and has switched from laggard to leader in the PM sector.


vand

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Re: Precious Metals
« Reply #722 on: January 31, 2021, 01:10:21 PM »
Might be some action in the PMs over the next couple of weeks..

celerystalks

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Re: Precious Metals
« Reply #723 on: January 31, 2021, 03:06:33 PM »
Apparently redditors discovered PM? Ag to be specific?

waltworks

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Re: Precious Metals
« Reply #724 on: January 31, 2021, 07:53:09 PM »
Apparently redditors discovered PM? Ag to be specific?

I actually use silver in my business, so I've preemptively stocked up for the year. So that probably means it'll crash to nothing.

-W

celerystalks

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Re: Precious Metals
« Reply #725 on: January 31, 2021, 08:04:51 PM »
Apparently redditors discovered PM? Ag to be specific?

I actually use silver in my business, so I've preemptively stocked up for the year. So that probably means it'll crash to nothing.

-W

I doubt that these redditors have enough money to move the silver market. Although if everyone believes their bluff and stocks up.. well that could cause a wave of panic buying.

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Re: Precious Metals
« Reply #726 on: January 31, 2021, 09:36:01 PM »
I don't have detailed specifics, but apparently JP Morgan has an enormous "paper" short on silver and if squeezed, things could get interesting.  Apparently for ever 1 oz of silver they actually own, they are short 15 ounces on paper.  Apparently a number of banks hold similar positions. 

Based upon the pain inflicted upon some hedge funds the past week or so with GME, I would not want to be on the other side of this trade.   

vand

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Re: Precious Metals
« Reply #727 on: January 31, 2021, 11:14:12 PM »
If “Hunt Brothers” doesn’t mean anything to you then you probably want to brush up on pm history for a possible sneak preview.. at least I’m kinda hoping so heh

Captain Cactus

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Re: Precious Metals
« Reply #728 on: February 01, 2021, 06:48:08 AM »
Apparently Apmex was having trouble processing orders yesterday and sometimes pages wouldn’t load.  I was looking at the pre 1933 gold but still it was a slow experience.

celerystalks

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Re: Precious Metals
« Reply #729 on: February 01, 2021, 07:35:00 AM »
If “Hunt Brothers” doesn’t mean anything to you then you probably want to brush up on pm history for a possible sneak preview.. at least I’m kinda hoping so heh

I think towards the end the Hunt brothers were buying silver futures on margin.  Without leverage, I don't see how the silver markets could be moved by a bunch of redditors.

Buying SLV in bulk could cause some short term volatility.
Buying 1,5,10 oz silver coins, rounds, or bars from online metals dealers is unlikely to move the underlying silver price much.  It will just bump up premiums temporarily.

When these redditors start snapping up 400 oz good delivery silver bars, then the markets will take notice.

waltworks

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Re: Precious Metals
« Reply #730 on: February 01, 2021, 08:19:49 AM »
They can use their GME fortunes to buy all the gold on earth, once it rockets to the moon.

-W

ChpBstrd

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Re: Precious Metals
« Reply #731 on: February 01, 2021, 09:58:45 AM »
I don't have detailed specifics, but apparently JP Morgan has an enormous "paper" short on silver and if squeezed, things could get interesting.  Apparently for ever 1 oz of silver they actually own, they are short 15 ounces on paper.  Apparently a number of banks hold similar positions. 

Based upon the pain inflicted upon some hedge funds the past week or so with GME, I would not want to be on the other side of this trade.

We are all on the other side of the trade if we are invested under the assumption that a financial crisis will not occur. What happens when JPM reels in a bunch of its risky bets due to a multi-standard-deviation event occurring that the models said was nearly impossible? Who is swimming naked?

Someone in another thread mentioned the repeal of Glass-Steagal - aren't we grateful to have these problems?

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Re: Precious Metals
« Reply #732 on: February 01, 2021, 10:51:28 AM »
Well, silver's sure up today... huh.

And the common retailers both don't have much stock and are charging obscenely over spot.  Interesting... I may have to try to pick up a bar or two tomorrow if the local retailer has any in stock, may as well help the rise.
« Last Edit: February 01, 2021, 10:53:45 AM by Syonyk »

TomTX

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Re: Precious Metals
« Reply #733 on: February 01, 2021, 11:58:47 AM »
Apparently redditors discovered PM? Ag to be specific?

No. It's the financial media trying to misdirect everyone. If anything, this is being driven from Wall Street/hedge funds. Citadel alone has billions of dollars on the line, and benefits hugely from the runup.

Reddit users are largely warning people away from the silver bandwagon

celerystalks

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Re: Precious Metals
« Reply #734 on: February 01, 2021, 12:14:19 PM »
Apparently redditors discovered PM? Ag to be specific?

No. It's the financial media trying to misdirect everyone. If anything, this is being driven from Wall Street/hedge funds. Citadel alone has billions of dollars on the line, and benefits hugely from the runup.

Reddit users are largely warning people away from the silver bandwagon

Figures... journalism used to be called first rough draft of history. But these days journalism is becoming the first revision of history.

vand

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Re: Precious Metals
« Reply #735 on: February 01, 2021, 01:18:13 PM »
A 5% move is nice but its nothing out of the ordinary for silver.

What nobosy seems to have noticed that platinum is up even more than silver today.. as the most undervalued precious metal its still my preferred play in the sector.

celerystalks

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Re: Precious Metals
« Reply #736 on: February 01, 2021, 01:48:55 PM »
A 5% move is nice but its nothing out of the ordinary for silver.

What nobosy seems to have noticed that platinum is up even more than silver today.. as the most undervalued precious metal its still my preferred play in the sector.

How do you invest in Pt? with coins or through an ETF?

Syonyk

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Re: Precious Metals
« Reply #737 on: February 01, 2021, 01:56:14 PM »
How do you invest in Pt? with coins or through an ETF?

Buy coins/rounds.

Also, yeah, I missed Pt's spike.

chasesfish

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Re: Precious Metals
« Reply #738 on: February 01, 2021, 10:02:11 PM »
I figured I'd wander into this post and ask this question:

What's your favorite way to sell?

I have a small personal stash I'm going to get rid of because I'm going to have to deal with an estate this summer and don't want anything to seem intermingled.   The estate has a bunch of the 40% silver that seems to be a real pain to move without either taking a haircut or a huge time investment.

Any advice is appreciated.

vand

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Re: Precious Metals
« Reply #739 on: February 02, 2021, 05:17:33 AM »
A 5% move is nice but its nothing out of the ordinary for silver.

What nobosy seems to have noticed that platinum is up even more than silver today.. as the most undervalued precious metal its still my preferred play in the sector.

How do you invest in Pt? with coins or through an ETF?

I have both physical coins and ETFs. Nowadays I only buy ETFs for all my PM exposure as my physical stack is big enough for any SHTF scenario, so it's purely an asset allocation play now.  Might well add to physical stack at some point but it's not a huge priority, and with Brexit the tax rules are less favourable for us on physical coins now.

I consider my physical holdings and my ETF holdings to serve different purposes, even though they could all just be grouped under "precious metals". The ETFs are part of my asset allocation mix within in my investment portfolios, whereas my physical stack serves as an anchor for a SHTF fund.

One of the problems of investing in physical silver and platinum (not so much gold) is trying to sell the physical stuff and recouping the premiums. Dealers will only pay you spot price.  That's why I consider my physical stack to strictly buy and hold and not up for any rebalancing purposes. If and when I do offload the physical, it will be gradually, through secondary markets (ebay, or to privately buyers), a tube or so at a time to provide ongoing cash for everyday living, and much later on in life as my assets are eventually sold down.


2Birds1Stone

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Re: Precious Metals
« Reply #740 on: February 02, 2021, 02:54:09 PM »
@chasesfish, it's not easy with physical to begin with, 40% is even worse. 90% junk silver (pre 1965 coins) are already fetching $1-3 below spot price on the sell side. I would email some of the smaller online physical sellers who also do buys. Apmex is a large operation and might not take 40%, but a large enough amount might get some of the smaller guys attention.

celerystalks

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Re: Precious Metals
« Reply #741 on: February 02, 2021, 03:08:21 PM »
I figured I'd wander into this post and ask this question:

What's your favorite way to sell?

I have a small personal stash I'm going to get rid of because I'm going to have to deal with an estate this summer and don't want anything to seem intermingled.   The estate has a bunch of the 40% silver that seems to be a real pain to move without either taking a haircut or a huge time investment.

Any advice is appreciated.

For your small personal stash, see if you can sell to an acquaintance who holds some PM. Might be able to agree right at spot or something. Might even be able to buy it back after the summer.

For the 40% stuff where you will be dealing with an estate, get a couple of estimates and go with the highest offer. Unless there are a few wheelbarrow loads of that 40% silver its probably not going to make much of a difference in the long run if you get top dollar or not. But would want to avoid any accusations that the PM was not valued or sold fairly for the estate.

TomTX

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Re: Precious Metals
« Reply #742 on: February 02, 2021, 07:50:18 PM »
A fair number of years back, I unloaded 90% "junk" silver at 3% over spot... at a gun show.

chasesfish

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Re: Precious Metals
« Reply #743 on: February 02, 2021, 08:38:11 PM »
A fair number of years back, I unloaded 90% "junk" silver at 3% over spot... at a gun show.

That's exactly what I don't want to do.

If I want to make money doing hourly work, I'll consult for $150/hr.

Based on how the estate is split, I don't get these proceeds anyways.  I just want to be fair but fast for my siblings.

TomTX

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Re: Precious Metals
« Reply #744 on: February 03, 2021, 11:30:14 AM »
A fair number of years back, I unloaded 90% "junk" silver at 3% over spot... at a gun show.

That's exactly what I don't want to do.

If I want to make money doing hourly work, I'll consult for $150/hr.

Based on how the estate is split, I don't get these proceeds anyways.  I just want to be fair but fast for my siblings.

Wasn't meaning to suggest that it's the only method, or worth the time for anyone else - just one method for potentially liquidating which allowed for a sell price above spot. I was going anyway and brought it along since there are a fair number of "preppers" interested in both.

For an estate? I think calling up a few local options (coin dealers and similar) would be sufficient for a reasonable personal-sized hoard of silver. If it's like 6 figures worth, I'd certainly cast a wider net.

vand

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Re: Precious Metals
« Reply #745 on: February 11, 2021, 02:23:47 AM »
Exciting days for platinum, and depite the recent gains I think that it's still immensely undervalued and should still outperform the other PMs over the next decade. Here are some 10yr regression analysis charts:

Platinum vs Gold:


Platinum vs Silver:


Platinum vs Palladium:


Notes:

- Before anyone says "what a load of bollocks, catalytic convertors are going the way of the dodo", remember this is not a fundamental analysis, merely a quantitative one.

- Generally, platinum is still deeply undervalued such the statistical regression suggests that it should outperfrom gold by roughly 12-13% over the coming decade (R2 0.7), outperform Silver by 4-5% (R2 0.62), and outperform Palladium by 11-12% (R2 = 0.47)

- Perhaps surprisingly, the correlation against Palladium is the weakest of all, so although on average we can expect good outperformance, the certainty of that is considerably less. This is more to do with the natural cycle in Palladium than Platinum, which if you study it's history has a record of performing out of step with the other precious metals.  Perhaps this is because it is because Pt and Pd are substitutes in many situations, so they compete against one another and when one is in the ascendency then the other is usually in decline, and Pt is the dog rather than the tail (ie it behaves similarly to line with gold & silver) with the result that it pushes the Pd cycle out of sync.


Car Jack

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Re: Precious Metals
« Reply #746 on: February 11, 2021, 06:31:54 AM »
I dumped the remainder of my silver besides some slicks that they didn't want.  Morgans and a roll of wheat pennies.  I get the best price at my eScrap dealer, of all places, so while I'm going there, I bring scrap aluminum and steel.  Another fun receipt.  $2.49 for the scrap and $194 for the coins.

I also asked about the presidential uncirculated coins my dad bought and I inherited.  They looked them up and they're not of any real value.  I might get something on eBay, but I'm not into getting scammed, which is what eBay has become for sellers.  I may do craigslist.  I've got rolls and rolls of these things.  They're not silver or anything, just initial offering, encapsulated uncirc singles and rolls.

BicycleB

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Re: Precious Metals
« Reply #747 on: February 11, 2021, 02:00:06 PM »
Exciting days for platinum, and depite the recent gains I think that it's still immensely undervalued and should still outperform the other PMs over the next decade. Here are some 10yr regression analysis charts:

Platinum vs Gold:


Platinum vs Silver:


Platinum vs Palladium:


Notes:

- Before anyone says "what a load of bollocks, catalytic convertors are going the way of the dodo", remember this is not a fundamental analysis, merely a quantitative one.

- Generally, platinum is still deeply undervalued such the statistical regression suggests that it should outperfrom gold by roughly 12-13% over the coming decade (R2 0.7), outperform Silver by 4-5% (R2 0.62), and outperform Palladium by 11-12% (R2 = 0.47)

- Perhaps surprisingly, the correlation against Palladium is the weakest of all, so although on average we can expect good outperformance, the certainty of that is considerably less. This is more to do with the natural cycle in Palladium than Platinum, which if you study it's history has a record of performing out of step with the other precious metals.  Perhaps this is because it is because Pt and Pd are substitutes in many situations, so they compete against one another and when one is in the ascendency then the other is usually in decline, and Pt is the dog rather than the tail (ie it behaves similarly to line with gold & silver) with the result that it pushes the Pd cycle out of sync.

I don't understand those graphs at all. Totally lost.

Maybe that's my fault. But:

What does each point represent? A price at some point during a year?
In graph 1, what is the unit of measurement in the x axis? The y axis?
Are these in a format where the x axis represents an independent variable, and the y axis a dependent one?
If these are covering a 10 year period, where is time shown?


vand

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Re: Precious Metals
« Reply #748 on: February 12, 2021, 09:20:46 AM »
I don't understand those graphs at all. Totally lost.

Maybe that's my fault. But:

What does each point represent? A price at some point during a year?
In graph 1, what is the unit of measurement in the x axis? The y axis?
Are these in a format where the x axis represents an independent variable, and the y axis a dependent one?
If these are covering a 10 year period, where is time shown?



Each point on the graph plots:

- the month-end price (ie the gold:platinum ratio) along the x axis
- the exact annualised 10yr forward return of A vs B on (in this case gold vs platinum) on the vertical y axis

Dataset is monthly from Jan 1968 - Jan 2011.
It's to 2011 because, although we know what the price was every month since then, we as yet don't know what the forward 10 year returns are for those months.

The better the datapoints can fit along a straight line the stronger the relationship is. In the real world the a correlation coefficient (Rsquared) of 0.7 is a very strong relationship. It means that 70% of the change in one variable is explainable by the change in the other variable (70% of forward 10 yr returns can be explained by relative valuation). 

The red lines simply show you where valuations and the best-fit expectation for the forward 10yr return sit today the regressed historic data.
« Last Edit: February 12, 2021, 09:25:53 AM by vand »

JAYSLOL

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Re: Precious Metals
« Reply #749 on: February 12, 2021, 09:46:49 AM »
I dumped the remainder of my silver besides some slicks that they didn't want.  Morgans and a roll of wheat pennies.  I get the best price at my eScrap dealer, of all places, so while I'm going there, I bring scrap aluminum and steel.  Another fun receipt.  $2.49 for the scrap and $194 for the coins.

I also asked about the presidential uncirculated coins my dad bought and I inherited.  They looked them up and they're not of any real value.  I might get something on eBay, but I'm not into getting scammed, which is what eBay has become for sellers.  I may do craigslist.  I've got rolls and rolls of these things.  They're not silver or anything, just initial offering, encapsulated uncirc singles and rolls.

Try a local auction house that will sell for you.  See if they will only charge commission on the amount over the face value.  Sell it as one big lot, someone might pay a bit over face for them at auction and you don’t have to do any of the work of meeting people/shipping etc