Click to enlarge.
Gold trades at $1,823.20 per troy ounce. Aluminum trades at $1.0376 per pound. There are 14.5833333 troy ounces in a pound. The current gold to aluminum price ratio is therefore a whopping 25,625 to 1.
Just look at that parabolic rise in gold from the year 2000 (as priced in aluminum). Amazing.
747 Fun Facts
A 747-400 consists of 147,000 pounds (66,150 kg) of high-strength aluminum.
Selling just 5.74 pounds of gold will now allow you to buy all the aluminum needed to make a 747-400.
Gold is apparently the only asset on the planet that is a safe haven at any price, or so the "Fast Money" theory goes anyway. Over the long-term, I'm just not a believer.
We live in the era of bubbles, booms, and busts. At what point are we going to realize that if something seems too good to be true then there must be at least some risk involved?
See Also:
Gold to Aluminum Price Ratio
Source Data:
USGS: Historical Mineral Prices
Kitco: Precious Metal Spot Prices
Kitco: Base Metal Spot Prices
Everything is risky...repeated margin hikes are a good way to smack gold.
ReplyDeleteWorked for silver, which was parabolic in April, but slammed after repeated hikes. And, COMEX expiration
next week. The big boyz play rough.
That said, hard to resist a little PHYS, which finally moved a bit today.
Like holding a single chip while watching the casino from the sidelines.
fried,
ReplyDelete"Everything is risky."
There are many ways gold could be knocked down should the powers that be wish it. It would not be hard from these levels.
What if our government placed a sin tax on gold like it does for cigarettes?
What if our government placed a windfall profit tax on gold investments?
These are the kinds of things that kept me up at night as a gold investor from 2004 to 2006. I'm serious. Look what I had to put up with in my state.
What Governor Gregoire said — and did
Instead of raising new taxes, Gregoire vowed during the campaign to take a "hard-nosed and long-overdue look" at the more than 430 tax loopholes that cost the state billions of dollars each year. She frequently cited the state's tax exemption on gold-bullion sales as an example of a questionable loophole.
That's not the kind of thing you want to hear right AFTER you buy gold. Let's put it that way.
Love these posts though I dont agree with them. Makes me think in any case.
ReplyDeleteGYSC,
ReplyDeleteFeel free to share your disagreements.
Do you think gold is not prone to bubbles inspired by Fed monetary policy? I believe it is prone.
Do you think gold is a safe haven at any price? I think history has shown it clearly wasn't. That said, history doesn't necessarily predict the future.
Do you think gold will always increase in value much faster than aluminum does? I tend to strongly doubt it. Who really knows for sure though.
Do you think gold's price will continue to rise faster than canned goods and toilet paper well into the distant future? I don't. Once again, who really knows for sure.
Do you think that gold is not in the midst of a speculative frenzy? In my opinion, it is one of the most talked about assets by those on CNBC. In sharp contrast, aluminum is rarely mentioned.
Just opinions, as usual.
I'm with getyourselfconnected. I like these posts comparing abc metal to xyz metal, although simply for the thought exercise. I don't think such points have any investment implications.
ReplyDeleteIncidentally, with what percentage of your portfolio are short gold?
WSM,
ReplyDeleteI did not short dotcom stocks. I did not short real estate. I did not short oil when it was $145 a barrel. I am not shorting gold or silver.
I actually owned gold and silver from 2004 to 2006 and they treated me quite well. I also still own my house that I bought in 1997. I did not cash out at the top.
I value safety. Instead, I buy I-Bonds and inflation protected treasuries with the intent to hold until maturity. So far so good on that plan.
I'm also not against hoarding hard assets in this environment as long as the things hoarded are a relative bargain and they do not require a greater fool at some point in the future (as seen here).
At what point are we going to realize that if something seems too good to be true then there must be at least some risk involved?
ReplyDeleteThat's just it. The world in which we've been living is what was "too good to be true". Gold isn't a risk asset, it's where you go when you realize that EVERYTHING ELSE is (including your treasured TIPS).
Gold is simply a barometer on political and economic instability. As long as the temperature is rising gold will, too.
tj and the bear,
ReplyDeleteIt is my opinion that gold is a safe haven when it trades at or below its long-term inflation adjusted average and is a risk asset when it trades well above its long-term inflation adjusted average.
That is/was also true of land value.
It is just an opinion of course.
Bonus thought.
ReplyDeleteI have never claimed that TIPS and I-Bonds are safe.
That might be a key difference here. I very much get the impression that most gold investors seem to think they've actually found safety.
I know I haven't.
It has been my goal all along that if I am to be financially ruined, then at least I won't be first to be.
I do not believe there is a safe store of value any more than Greenspan did in 1966.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. - Alan Greenspan (1966)
That said, toilet paper is about the only thing that comes remotely close right now.
ReplyDeleteThe gold to toilet paper price ratio is off the chart.
Put another way, at gold's current price it is screaming for investors to buy toilet paper and canned goods before they too go up in price.
ReplyDeleteWhether gold is right to be screaming this has yet to be seen, but I see very little harm in taking its advice. Worst case, you'll simply consume the products anyway. No big deal.
I would also point out that you cannot become wealthier by stocking up on toilet paper and canned goods for future personal consumption.
ReplyDeletePerhaps that's why toilet paper and canned goods are not in a bubble. Perhaps gold investors think they "need" more than safety. Perhaps they need a real return that allows them to grow richer.
P.S. I think my comments are acting like a twitter feed. Sorry about that! ;)
How can I resist another gold thrashing by the gold heretic?
ReplyDeleteI am a gold investor for many reasons, I won't bore with them because I've listed them before.
I use several models and indicators to judge gold prices. According to the statistical model I have relied on most since 2008, gold is now 4 sigma above the prediction price. Yowza! Based on that, I sold a little last week, and sold half my paper gold this morning. I hope to get a better entry after a sharp correction, but it could very well be entering a mania phase.
It's not that I think the price is too high, but it got this high a little too quickly IMO. I won't consider exiting completely until after 2500, but at this pace, it could be there early next year so I have to give some brain cycles to a clean exit strategy.
I hope that gold is a bridge to another monetary system after this one crumbles, but I have feeling gold won't fall until we all pass through what will feel like an end of the world event.
Mr Slippery,
ReplyDeleteI am indeed a gold heretic (former believer who has lost the faith). Guilty as charged. If you think you would exit at 2500, then what would be your heretic level given what you know now? For me it was about double my exit point. Would 5000 do it for you? Not judging, just curious.
I think there is much pain to come for all (heretics included).
For what it is worth, I see a transition to a pure digital monetary system. On the one hand, no more coins in pockets. Hurray! On the other hand, really big numbers on statements (even at 2% inflation, numbers will be HUGE in the distant future). Boo! Hiss!
Mark,
ReplyDeleteYou're a bright and level-headed guy, but aren't you fascinated by the visceral response gold evokes even in you (witness your "tweets")? Gold is and will always be as irrational as people are; it's innately human and defies logic.
I was very much in the "barbarous relic" camp until 2002. Once I realized the underlying psychological nature of markets & bubbles (& busts), well, grasping the significance of gold was easy.
Curious... what caused you to "lose the faith"?
ReplyDeletetj and the bear,
ReplyDeleteI will not deny that gold has a hypnotic appeal, as did bags of junk silver quarters.
I think time caused me to lose faith. I came to realize that aluminum is a similar hypnotic effect on me. It may not have 5000 years of history (it is a modern metal), nor is it rare, but it is amazingly useful (flight!) and it is incredibly cheap. We take it too much for granted, just like we do canned goods and toilet paper.
I also came to realize that gold's value is determined by others. If I was the last person on earth, then gold would have virtually no value to me. I'm a fairly cynical, skeptical, and independent person. That doesn't sit well with me.
Granted, I-Bonds would be similarly worthless. That said, I think I know what they are currently worth to me. They have virtually no chance of making me better off at today's 0.0% rate, but that's okay.
I also hoped owning gold and silver would improve my sleep. Riding shotgun (.45) on the safe wasn't having that effect though. Not even close. I bailed during the parabola of 2006.
My heretic level?
ReplyDeleteNo set number. Gold at 5k would not bother me at all. But the political forcing that would drive gold to that level might, as you suggest, also create other side effects such as a 90% windfall profits tax. The government always wins.
So, above 2500, I think the risk of adverse political penalties rises significantly. It's a line in the sand you can't see. I'd rather take profits before that becomes an issue, even if I miss out on a larger move.
I can't pick a random number where I become a true heretic because the potential number of dollars is infinite. How many 1923 marks is one oz of gold worth? How many zim dollars?
The heretic phase began when gold hit $1000, but only in comparison to toilet paper. In other words, if toilet paper triples in price then $1000 gold might look pretty good to me again.
ReplyDeleteThis is not a prediction.
Mr Slippery,
ReplyDeleteIndeed. So many unknowns! That's why added the "given what you know now" part. I should have been more specific. I was not looking for a future heretic level.
My heretic level will at the very least adjust for inflation in the years ahead.
There may even come a time when $5000 gold looks good to me. I shudder at the thought of what toilet paper prices would be to make me think that though. Sigh.
Aluminum really does interest me by the way. I'm not just comparing it to gold to push my heretic agenda, lol.
ReplyDeleteThe Quantity Theory of Aluminum
Costs ~$500/oz to manufacture gold.
ReplyDeleteBubble bubble bubble.
http://www.prophetau.com/barbs.htm
I've long been fascinated as to how metallic gold, created in a supernova, gets concentrated into placer deposits.
~50 million ounces of gold were collected from the California gold fields in the first 40 years.
$100B worth. 2-3 years' worth of current California agricultural output, to put it in perspective.
Trpy,
ReplyDeleteMany centuries from now man may stumble upon my toilet paper hoard and wonder what process brought all these wonderful empty scrolls together and enclosed them within a wooden mausoleum!
Perhaps I should etch a copy of Bernanke's 2002 deflation speech in the sheet rock, lol.
Actually in Italy archeologists are constantly stumbling on Roman coin hoards that are then put on display in museums. Every Italian town has its "buried" treasure hoard of hundreds of coins.
ReplyDeleteThink some of the fear is that we've already transitioned from "currency" to digital chits. One can travel the world with only a few cards and soon it'll be one electronic device from which a wide range of chits (not just "money" but boarding passes; museum passes, coupons, etc.) will be dispensed.
One can view the visa/mc/debit/ATM cartel as as a digital monetary interface not dependent on any one currency or hard asset. Billions of transactions without one piece of paper (or gold) changing hands.
It's electronic "money" backed by securitization (and when in duress, taxpayers); a totally privatized system of credit creation.
The transition is difficult and that explains the fear trade to gold; but LOL even that's driven by an electronic concept ie ETFs.
This new psychological phenom will take some time for total transition; but even SNAP is now a JPM debit/visa card.
What happens when the only "currency" accepted is digital or currency itself becomes "illegal" or simply not accepted? For me that's the real underlying unease. Not fiat; but private digital systems underpinned by taxation.
dd,
ReplyDeleteWhat happens when the only "currency" accepted is digital or currency itself becomes "illegal" or simply not accepted? For me that's the real underlying unease. Not fiat; but private digital systems underpinned by taxation.
I tend to agree. I think it is especially concerning to those who have brief cases full of cash and operate in the black market.
Further, serious inflation is not a major drug dealer's friend. Brief cases full of cash have a way of losing value at 1% per month if inflation is 12%.
The tax-free nature of the cash transactions smooths the inflation consequences.
ReplyDeleteThis is where the digital construct is a win-win for governments and favored financial institutions. Taxes, fees and inflation on both sides of every transaction are a plus for revenues.
So maybe the extra-digital markets use gold coins? It will be interesting.
dd,
ReplyDeleteThe tax-free nature of the cash transactions smooths the inflation consequences.
I'm reminded of the time I bought a Teryaki meal in a small non-chain store restaurant.
I paid cash. She pretended to use the cash register. She gave me change and no receipt.
I did not eat there again. There was a certain lack of trust established. ;)
In illicit trade there is never a receipt. Reminds me of an old criminal law joke:
ReplyDeleteA client showed up with a bag of cash:
"Do you want a receipt?"
"We never pay twice."
It's a different sort of "trust."
dd,
ReplyDeleteVery amusing!!
Sorry to come in late to this party, just got back from vacation - but I am wondering, could the price behavior for gold vs. aluminum be directly related to the constrained marginal supply (for gold) vs. the abundance of supply (and spare capacity) for aluminum?
ReplyDeleteThe cost of extraction of gold is irrelevant if you can't produce any more than you're already producing, and there's a surge in demand for the metal.
BTW, at this point there isn't a single asset class that doesn't give me nightmares over glaring risks. I keep feeling like individual investors -- especially those trapped in 401ks with limited options -- are basically just trench troops in WW1... The only real hope is that too many other folks drop dead, while you just get wounded, then they call off the war...
Wisdom Seeker,
ReplyDeleteWhen I was buying gold in 2004 I had no direct use for it. I bought it because I thought I would someday sell it to acquire things like aluminum if prices rise. It was an inflation hedge to me and one I could easily store on my property.
Nobody has faith in aluminum right now. I can't even say I do. The world has so much excess capacity. For all I know aluminum production is braced for every single person on the planet flying his own 747-400. Wouldn't that be a hoot with $80 oil? ;)
If the world really is awash in aluminum then why do I need to concern myself with hyperinflationary fears? Surely if we hyperinflate then aluminum prices must rise. Aluminum prices tripled in the 1970s.
Things are falling apart and emotion is taking over. Perhaps it is a bit like catching on fire. Panic isn't always bad, especially if one chooses to panic towards a large body of water, lol. Sigh.
I'm trying to not catch fire in the first place though. Who knows if I will be successful. Every investment seems like a powder keg. Some just have longer fuses perhaps. In any event, many investors will be burned. I have no doubt of that.
And lastly...
The cost of extraction of gold is irrelevant if you can't produce any more than you're already producing, and there's a surge in demand for the metal.
I would argue that this is the basis of every bubble. Picture housing. When people stop concerning themselves with the cost of extraction/production/construction then it is probably best to lighten up on the investment a bit. Just a thought.