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edited August 2011 in Fund Discussions
Our plumber said today he's made 30% in gold this year. My stupid gold fund, MIDSX, has lost 16%. How can there be such a big difference? I think buying this was a mistake.


  • beebee
    edited August 2011
    I'm feeling a little of the same pain in USAGX...down 4%. Both hold a lot of miners and little or no metal. I believe they will play catch up or gold will correct downward...I think miners will play catch up. TGLDX has a little bit of both miner and the and silver.
  • edited August 2011
    A few various notes/theories:

    1. Many people are stunned by the difference in returns from gold vs. gold stocks. You are looking at an instance where irrationality is pretty remarkable in terms of gold stock valuations. It just depends how long the irrationality takes to reverse (or if it does?)

    2. There were a number of discussions earlier this year about hedge funds shorting gold stocks and going long gold.

    3. The Jim Rogers theory: if you want a commodity (whether it be gold or whatever), invest directly in it - stocks (moreso these days) are too carried around by whatever the market is doing and it's too difficult to pick the right play to take the best advantage of a particular commodity.

    4. People just wanted the physical, they did not want a miner who could be subject to bad weather, technical problems, higher costs, bad hedging/management, yadda yadda yadda. This is why I continue to recommend Toqueville Gold (TGLDX); certainly voaltile, but John Hathaway is the best manager in the sector.

    5. There seemed to be a point where gold started to look like it was taking on a monetary vector a month or two ago (which goes back to the line from JP Morgan: "Gold is money and nothing else."), and that may have added to gains. People who don't want to be in the dollar, but the world can't pile into the Swiss Franc and other currencies have problems, too - so...? This can also be filed under loss of confidence (in the system, currencies, governments ability to handle economies, etc.)

    6. Maybe declining production? (I don't know, I haven't really looked at that - all I know is supply is gaining a bit over 1% a year, last I heard.)

    7. Something worse than anyone is publicly aware of is brewing under the surface. (see:

    Again, I stress diversification in terms of investing in commodity, commodity-related or "real asset"s. The precious metals are fine, but agriculture is also something I'd highly recommend looking at.

    Additionally, the Midas fund you have appears both leveraged and aggressive; if things are going well for the sector, it has the potential to outperform. In a situation like this, it can end up at the back of the pack - it was at the bottom of the category in 2008 and was near the top in 2009. Again, I'd recommend the Toqueville fund for a smoother (by comparison) holding.

    Also, to add: the article portion of this summarizes my thoughts pretty well (although I don't think this ends with deflation):
  • edited August 2011
    hello Mindy
    look at this tables of all ETFs, only the first page is green, rest 9 pages are all in red
  • Mindy, what does it say about gold that your plumber is buying it? Here's a rather famous story about the crash of 1929:

    "The story of how Joe Kennedy avoided ruin in the 1929 stock market crash is a Wall Street legend. While getting his shoes shined, Kennedy’s shoeshine boy started giving him advice on what stocks to buy. At that very moment Kennedy claims he had an epiphany, realizing that it must be time to sell. After tipping the bootblack, Kennedy reportedly hurried away and sold all of his stock holdings just in time to avoid the carnage of the 1929 stock market crash.

    Similarly, Bernard Baruch, the legendary Wall Street trader, famously wrote of the zeitgeist as it manifested in the common man at the height of the 1929 bubble:

    “Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929.”

    Shoeshine boys (taxi drivers, waiters, etc.) giving stock market advice has become a Wall Street metaphor for prototypical behavior at the top of financial markets bubbles."

    I would include plumbers in the group with shoeshine boys.
  • Reply to @johnN: Oh John! All that red hurts my eyes. I guess I won't complain any more. Thank you.
  • Hi Fund Kid,

    Ah, but Joe took the proceeds from his market liquidation and bought gold. He later used that gold during the depression to purchase assets cheaply.

    Hi Mindy,

    Scott listed many reasons but what is happening is folks are taking possession of the physical metal. The vast majority of precious metals funds such as MIDAX and USAGX invest in the stocks of mining companies and those related to producing gold bullion for market. It's the same with natural resource funds - they buy the stocks in the various fields - but not the commodities themselves. Most often this is NOT a problem and over the longer run will turn out to NOT be a problem this time. The mining stocks and bullion in its various forms, trade in different markets which are subject to differing impacts. The equity market can be booming and mining stocks doing well - and bullion could be doing terribly [and for the purists, this is the case 90% of the time].

    Eventually, the mining stocks will catch up with gold OR gold will drop to parity with the mining stocks. The long running metric for this relationship is called the Gold/XAU ratio and it's been running way out of equilibrium for much of this bull market. It's still reading numbers that scream BUY MINERS. The current ratio is 8.74 and 4.0 is equilibrium.

    For old times sake, the gold/silver ratio is 43.74 and historically, it's been in the 15-20 range and so it too is still screaming BUY SILVER.

    What do I think? I still like miners relative to bullion and silver relative to gold, but please note that this is very much - on the margin. I think people should take possession of a goodly portion of their precious metals. This is fairly simple - you can do a safe deposit box (best) or stash it away (e.g. take a 100 oz. bar of silver, paint it black and use it as a door stop - or know that a roll of 20 1 oz. gold eagles is about the size of a quarter and 2" tall and is worth about $40K. You can hide it in a box of oatmeal.), or buy some nice bling. Best jewelry is basic stuff without an artistic premium.

    End of year predictions - gold's looking like a new inflation adjusted high of $2200-2300 and silver a new nominal high over $50. We're coming into the high season and NOW is the time to get long for the season.

    just some mumblings,



  • Today was a good day to buy more TGLDX-nearly as cheap as it's been all year. Gold may be down today because people are taking profits to purchase cheap stocks, at lease I did a little of that today.

    I agree with rono that miners and gold will be going back up for new highs.

  • Reply to @DPN: LOL I am surprised people still read this after a month. Well, I was worried about being down 16 percent than. I only wish! Now MIDSX is down 25 percent. Already told the grandkids no presents until Grandma recovers her losses. Let's hope by Christmas. Thank you for your thoughts.
  • Mindy, the profit 4 the plumber is from the rings he finds in the sink traps !!!!
    edited September 2011
    I suppose this really doesn't mean to much to all the gold haters, but watching ones stocks everyday can be humbling. Look on the bright side Mindy:


    3mo = -4.2%
    Y2D = -27%
    1Yr = -12.0%

    So a bad year... maybe, but there are still a few months left.

    May not be a bad thing in the long run as your cost goes down for purchasing more now. If you liked it then, nothing has really changed in the US economy to like it less now.


    5 yr = +10%
    10 yr = +340.86%
    All Time = +222%

  • beebee
    edited September 2011
    Hey Scott,

    Deflation according to Harry Dent as's his recent July interview if you missed it:
  • edited September 2011
    Reply to @bee: Hi bee. Good discussion. Mine got chopped off a bit near end. I'm curious about housing values which we looked into as part of recent re-fi process. Makes no sense to me that in Northern Mich in nice areas you can purchase 3 bedroom homes w/attached garage and 5-10 acres or maybe on hill-top overlooking Lake Michigan for $100,000 - $120,000. Just nuts when you look at the price of just about anything else. A decent full size car will run $30,000. A nice pickup truck $50,000-$60,000. I raise this because part of Dent's argument is the depression in housing, but it can't go on. I'd liken it to the $250-$300 price on gold a decade ago. Course, due to the horrible econ few can afford to buy a house and we noticed that lending standards are way over-the-top compared to a few years back. Note that the yield on 10 year was hanging close to 3% in interview. (-:
  • edited September 2011
    Reply to @bee: I believe that inflation is the end result, but if problems remain unchecked and that's left to play out, then I could certainly see another 2008-style scenario. Neither end result is good.
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