gold:wtic

[rogermexico]

Re: gold:wtic

The chart compares that value of gold to oil. However, it does not factor in gold's collectibles tax rate of 28%.
A chart accounting for that would take some of the luster off gold's performance.

What are you considering to be the tax rate on crude oil? Unless you are buying and storing physical oil, the purest way to own it is going to be via futures, which are taxed at a blended 60/40 rate (long term/short term cap gains). If you are in the max tax bracket, this means around a rate of 26-27%. So there is no tax advantage to owing oil over gold in the real world.

But if you hold gold as GTU or PHYS, the tax advantage actually goes to gold as these can be taxed at the max long term cap gains rate.

Maybe I am missing something in your comparison.

[rogermexico]

Re: gold:wtic

what difference does it make? these are only guesses anyway. why seek an illusion of precision?

+1

To those wondering if this represents some newly revised "target" for the gold price, please note that the thought experiment is called "Oil price driven gold price scenario".

Do you notice something missing? How about the american financial crisis and the breakdown of the IMS? These are missing from the the projection. This projection is based only a range of AU/CRUDE ratios and peak cheap oil. (Even though the process itself will indeed precipitate and amplify the political and monetary phenomena that will add to it)

Any change in the value of the dollar in terms of gold between now and 2020- inflation - will be superimposed on this PCO driven scenario.

Perhaps I am jumping the gun, but I see this as a good explication of one important source of the abnormal profits that will be achieved by owning gold going forward - there will be profits nominally due to dollar depreciation, and then profits due to gold's function as a proxy for crude oil. There will, I would expect also be profits to be had due to the mechanics of opening the gold window in a way that arrests the inflationary poom without draining off all the gold reserves,a s I have speculated on before here - i.e., the window must open at a gold price that is high enough to discourage all dollars being exchanged for gold..

The concatenation of these forces, which were less fully operative - less extreme - in the last gold rise period, will result, IMO, in both nominal and real price rises in gold priced in dollars that exceed those we saw from 71 to 81.

So I would view 4K as a floor, and continue to look for ultimate nominal prices much higher, at least 6K or more...

[raja]

Re: gold:wtic

there's nothing to flesh out. all my investments are in pensions/ira's, and so taxes are irrelevant to me until i make a withdrawal. then the taxes - as ordinary income- are painful.

otoh, you appear to think there is no tax on gains in oil investments.

You mean you have to pay TAX on gains in oil investments ?!?!
I am shocked . . . .

[raja]

Re: gold:wtic

What are you considering to be the tax rate on crude oil? Unless you are buying and storing physical oil, the purest way to own it is going to be via futures, which are taxed at a blended 60/40 rate (long term/short term cap gains). If you are in the max tax bracket, this means around a rate of 26-27%. So there is no tax advantage to owing oil over gold in the real world.

But if you hold gold as GTU or PHYS, the tax advantage actually goes to gold as these can be taxed at the max long term cap gains rate.

Maybe I am missing something in your comparison.

I don't want to get into a debate about the best or "purest" way to invest in oil, but there are alternatives to futures:

How to Invest in Oil (Without Getting Your Hands Dirty)

Invest in Oil with Oil ETFs

There is an alternative to investing in oil without becoming the neighborhood gas station.


What are Oil ETFs?
Enter Oil ETFs. Oil commodity exchange traded funds are a simple way to expose your investment strategy to the price and performance of oil, without actually owning any oil itself. Oil ETFs consist of either oil company stocks or futures and derivative contracts in order to track the price of oil, or in some cases oil-related indexes.
For example, one of the most popular oil ETFs is USO, the United States Oil ETF. In the case of this particular oil ETF, you do not actually own the oil; the fund consists of futures, options and forward contracts for different oils, gases, and petroleum based-fuels. So you have exposure to the price of oil, but you don’t have an actual oil rig gushing in your back yard.

Why Should I Buy an Oil ETF?

The other nice thing about oil ETFs is the simplicity of the trade. If you wanted to invest in the oil industry, you would have to make individual purchases of oil company stocks. And then there is the decision of which companies to choose. And even if you decided to invest in an oil index such as the OSX, there is still the challenge of purchasing all the equities in the index basket in order to target a certain price. Complications and commissions make it hard to achieve your investing goal.
However, in the case of an oil ETF, like the OIH (which tracks the OSX Index), you make one purchase at one price and save on commissions. The oil ETF is already bundled ahead of time. With one trade, you have instant exposure to the price of oil.

What are the Benefits of Oil ETFs?

When you consider an oil ETF for your portfolio, the nicest attraction is the advantage it creates for an investor. Capital gains taxes aren’t incurred until the sale of the fund, giving ETFs huge tax advantages over other investments such as mutual funds.

[rogermexico]

Re: gold:wtic

I don't want to get into a debate about the best or "purest" way to invest in oil, but there are alternatives to futures:

I am guessing that most of us who trade commodity futures have heard of commodity ETFs and don't use them for very good reasons.

Perhaps tax advantages given the same returns, which they are usually not...

The enormous friction, heavy fees and poor tracking of ETFs in energy make direct investment in futures much more attractive at almost any tax rate. With direct purchase of futures contracts I can select the exact contract I want and when to roll it over if I desire. And I almost never hold longer than a year in any case, so the blended tax rate of 26% is better than I can ever do with ETFs over the same holding period.

The peak cheap oil cycle with peaks and valleys exaggerated by the braking effect on the economy mean that much of the potential profit is left on the table with a pure buy and hold multi-year approach. I've been swing trading oil futures successfully only at select points in the cycle since 2007 on this basis. I would have had my ass handed to me with buying and holding USO over the same trading periods I have used and therefore not had many cap gains to worry about...

And the larger point is that both oil and gold are subject to tax and both oil and gold can be subject to the low max cap gains rates with the appropriate vehicles.

That is what JK is saying to you as well.

Your argument about the tax rate on gold negating the way that gold tracks oil makes little sense unless you think oil is somehow not taxed, or is taxed at some large differential to oil, which I think I have shown it is not, unless you try to put yourself at a tax advantage on purpose somehow or don't know what you are doing.

[globaleconomicollaps]

Re: gold:wtic

I see the mean ratio is 15. But the range is fairly big, between 7 and 25. At the boundaries, this could result in $1980/oz or $7071/oz gold by 2020. Min's and Max's aren't very useful here because they rarely happen, but StdDev would be interesting.

I might suggest for your analysis, it would be useful to draw thin or dotted upper and lower 2x StdDev lines projecting out into the future in a cone, where 2xStDev generally represents ~90% confidence. (Or even a Min/Max line if StdDev too difficult to do).

What you are describing are called "Prediction bands". They are tricky to do in Excel.

[globaleconomicollaps]

Re: gold:wtic

+1

To those wondering if this represents some newly revised "target" for the gold price, please note that the thought experiment is called "Oil price driven gold price scenario".

Do you notice something missing? How about the american financial crisis and the breakdown of the IMS? These are missing from the the projection. This projection is based only a range of AU/CRUDE ratios and peak cheap oil. (Even though the process itself will indeed precipitate and amplify the political and monetary phenomena that will add to it)

Any change in the value of the dollar in terms of gold between now and 2020- inflation - will be superimposed on this PCO driven scenario.

Perhaps I am jumping the gun, but I see this as a good explication of one important source of the abnormal profits that will be achieved by owning gold going forward - there will be profits nominally due to dollar depreciation, and then profits due to gold's function as a proxy for crude oil. There will, I would expect also be profits to be had due to the mechanics of opening the gold window in a way that arrests the inflationary poom without draining off all the gold reserves,a s I have speculated on before here - i.e., the window must open at a gold price that is high enough to discourage all dollars being exchanged for gold..

The concatenation of these forces, which were less fully operative - less extreme - in the last gold rise period, will result, IMO, in both nominal and real price rises in gold priced in dollars that exceed those we saw from 71 to 81.

So I would view 4K as a floor, and continue to look for ultimate nominal prices much higher, at least 6K or more...

That thought had occurred to me. That is why I posed the question, rather than asserted that this was a new target.

[globaleconomicollaps]

Re: gold:wtic

And the larger point is that both oil and gold are subject to tax and both oil and gold can be subject to the low max cap gains rates with the appropriate vehicles.

That is what JK is saying to you as well.

Your argument about the tax rate on gold negating the way that gold tracks oil makes little sense unless you think oil is somehow not taxed, or is taxed at some large differential to oil, which I think I have shown it is not, unless you try to put yourself at a tax advantage on purpose somehow or don't know what you are doing.

You know Roger, Some people live in countries where profits on gold are not taxed.

[rogermexico]

Re: gold:wtic

You know Roger, Some people live in countries where profits on gold are not taxed.

I was not attempting an exhaustive treatise on all permutations of investment environments.

Tax rates may change. People may sell physical coins and not report it, taxes may be different in parallel universes, etc., etc.,....

None of these facts negate the central point about gold tracking oil, do they?

[raja]

Re: gold:wtic

Your argument about the tax rate on gold negating the way that gold tracks oil makes little sense unless you think oil is somehow not taxed, or is taxed at some large differential to oil, which I think I have shown it is not, unless you try to put yourself at a tax advantage on purpose somehow or don't know what you are doing.

RM,

You point out that you pay a 26% tax rate on your oil investment profits with futures.
That is 2% less tax on oil profits than someone paying the 28% collectibles tax rate on gold, right? So aren't you making my point for me? Granted, 2% is not "some large differential to oil", but I never claimed that. My original statement was that a chart accounting for the 28% collectibles tax would "take some of the luster off gold's performance".

You then stated, "And the larger point is that both oil and gold are subject to tax and both oil and gold can be subject to the low max cap gains rates with the appropriate vehicles."

If you know of vehicles to reduce the tax, why then do you invest in futures that cause you to pay 26% tax?

Also, have you figured in the buying costs of gold for those that want the security of holding physical? Regardless of the tax rate, wouldn't the premiums over spot "take some of the luster off gold's performance"?

I'm not trying to be right, I'm trying to preserve my wealth. So if you have ways of getting around the 28% collectibles tax, would you mind sharing them? What are the "appropriate vehicles" you mention?
jk has his gold stashed in IRA's. Does that work for someone who wants the security of physical?
Furthermore, being retired I cannot use an IRA, so what tax-reducing vehicles are open to me?

I'm not asking you to be my investment advisor, but if we are having a rational debate here, it is certainly legit for me to ask to be specific on your counterpoints . . . .

[jk]

Re: gold:wtic

raja. there's no free lunch.

[charliebrown]

Re: gold:wtic

From Expericence ... ouch!

I have owned DBO, and UNG they are horrible investments long term. Just go to stockcharts.com or yahoo finance or anywhere you can get a long term chart.
At least from past pricing data owning XLE beats owning DBO. With oil depletion and the gvt loving to bash big oil, maybe past performance of XLE vs DBO will not
be the same. USO over the long term is even worse than DBO.

If you want to speculate short term on the price of oil DBO would be my choice. If you want to hold for 2,3,5, or 10 years I would not own DBO. I think it is the rolling of the contracts from month to month that are the killer. From the DBO prospectus, I think they try to roll the contracts at the most favorable points.
USO I don't think tries to time contract rolling, they just do it mechanincally close to expiration day.

[EJ]

Re: gold:wtic

That's a lot lower than your last gold price projection. Is this a rethink?

We have been right about gold since 2001 because we constantly check and re-check our assumptions.

The only way to be right is to assume you are wrong and continually test your assumptions.

Checking the gold price versus oil is but one of many of our checks. Others include the ratio of central bank gold reserves to total currency reserves and dollar reserves and the ratio of gold reserves to total US foreign liabilities in dollars, based on our theory of the behavior of gold as an international reserve currency during a period of crisis for an outdated IMS in transition.

As for $4,000 gold as projected by the gold/oil ratio, again I believe that oil is approximately 20% lower in price today than Peak Cheap Oil theory predicts. The reason is that demand for dollars is higher than it would be if Europe were in better shape and the US was not buying dollar-dominated debt, and demand for oil would be higher but for the knock-off effect of the American Financial Crisis: global output gaps.

My price projection of $2,500 to $5,000 in 2001 when gold traded for $270 appeared outlandish but a convergence of these price projection models justified it. They still do.

[rogermexico]

Re: gold:wtic

RM,

You point out that you pay a 26% tax rate on your oil investment profits with futures.
That is 2% less tax on oil profits than someone paying the 28% collectibles tax rate on gold, right? So aren't you making my point for me? Granted, 2% is not "some large differential to oil", but I never claimed that. My original statement was that a chart accounting for the 28% collectibles tax would "take some of the luster off gold's performance".

You then stated, "And the larger point is that both oil and gold are subject to tax and both oil and gold can be subject to the low max cap gains rates with the appropriate vehicles."

If you know of vehicles to reduce the tax, why then do you invest in futures that cause you to pay 26% tax?

Also, have you figured in the buying costs of gold for those that want the security of holding physical? Regardless of the tax rate, wouldn't the premiums over spot "take some of the luster off gold's performance"?

I'm not trying to be right, I'm trying to preserve my wealth. So if you have ways of getting around the 28% collectibles tax, would you mind sharing them? What are the "appropriate vehicles" you mention?
jk has his gold stashed in IRA's. Does that work for someone who wants the security of physical?
Furthermore, being retired I cannot use an IRA, so what tax-reducing vehicles are open to me?

I'm not asking you to be my investment advisor, but if we are having a rational debate here, it is certainly legit for me to ask to be specific on your counterpoints . . . .

I estimated 26-27%. If you want to think of the difference between 26 or 27% and 28% tax as meaningful in a monetary sense , I have to respectfully disagree that such a difference would negate the relationship between gold and oil or the value if investing in gold as a proxy for oil.

The appropriate vehicles are the ones I already mentioned - GTU and PHYS can be taxed at long term cap gains rates if you file the proper tax forms. These are the vehicles I use for gold that are taxed lower than 28%.

If I use futures to swing trade in oil, and they are taxed at 26% and my gold is taxed at 15%, then the advantage goes to gold, which refutes the argument I took you to be making that EJ has not properly accounted for the taxes on gold when he advocates holding gold as a proxy for oil. Gold is not for most investors at a disadvantage to oil in any practical sense.

As far as accepting a tax rate of 26% or so on futures, I explained already that most of the profits in oil are available (to me) in shorter moves - swing trades- so for me the 26% blended rate on a futures trade -which is the same whether I hold for one hour or one year- makes perfect sense over the theoretically lower rate of 15% on an ETF that in my experience is likely to perform much more poorly than I can achieve by trading futures contracts on my own.

As far as being retired, I am "retired" as well in the sense that I can no longer contribute to any tax sheltered retirement accounts.* But I do have rollover IRAs that are still extant that can be directed into PHYS, GTU and the like. And one can pay stiff fees and set up IRAs that can invest in physical gold, which is not something I would bother with, personally. But you can do it if you like.

Are you saying you have no tax sheltered savings that can be directed into what you want? If not, perhaps a 1:1:1 ratio of PHYS:bullion coins:Bullionvault would be a good way to start. But I am surprised if you have not already backed up the truck on gold. You've been here at tulip for quite a few years if I am not mistaken.

* In actuality, I terminated my imaging center company's retirement plans 2 years earlier than I had to, having made the decision that the political risk of holding assets in retirement accounts was no longer balancing the greater returns achieved through the tax advantage. But that could be a long essay and a long thread of it's own. Suffice to say I would not have any government controlled retirement accounts now if I had a choice - at least until the IMS has done its re-set and we see what desperate moves the government comes up with during the transition period.

[Mega]

Re: gold:wtic

£5,000 Gold?.................Yes BABY !!!!!!