gold:wtic

[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? .

No it is just the opposite. The best rate I get with gold is 15% and best rate I get with oil futures is 27%. Advantage gold.

If you want to use USO and PHYS, and hold long-term, both will be taxed at 15%, but PHYS will track gold with less friction better than USO will do so with oil.

Advantage gold again....

[c1ue]

Re: gold:wtic

Capital gains taxes aren’t incurred until the sale of the fund, giving ETFs huge tax advantages over other investments such as mutual funds.

These tax benefits only accrue if you don't trade in/out. Perhaps for gold this makes sense, but for ETF 'investment' in oil is far more volatile and IMO requires trading in and out.

Any proxy investment in commodities also has the severe problem of counterparty risk. You might not think this an issue, but many people (as I) do.

[jk]

Re: gold:wtic

i hold oil and gas long term via a basket dividend paying producers. the basket as a whole has tracked wtic fairly well, and has thrown off a dividend stream at the same time.

[rogermexico]

Re: gold:wtic

USO I don't think tries to time contract rolling, they just do it mechanincally close to expiration day.

I think this is true. And if traders front-run the contracts with this knowledge, the decay (and money you lose holding) will be exaggerated even more...

[rogermexico]

Re: gold:wtic

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based on our theory of the behavior of gold as an international reserve currency during a period of crisis for an outdated IMS in transition.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.

Mutually reinforcing models all point the same way in the case of gold.

I agree that it is oil that is cheap relative to gold right now. I put my money where my mouth is and bought september WTI at $79 last week.... The first crude position I have taken since selling it at around $105 some time ago....

[tmicou]

Re: gold:wtic

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

Prediction Bands are interesting and useful, but what I'm talking about is simpler, and easily done in Excel. All I'm talking about is taking the prediction of the price of Oil, and multiplying by the ratio +- the StDev. All you need is to add two columns to excel, the high and low and it's simple arithmetic knowing the StDev is 5.24. For today, oil is at roughly $79, so high and Low point 1 is: $79 x (15+2 x 5.24) = $2012.92 for the high band, and $79 x (15-2x5.24) = $357 oz. For the end of the period, the calculation is the same, with $264 replacing $79. The calculation comes out to gold = $3959 +/- $1938 or a range of approximately $2000 to $6000 for a 95% confidence level (use 1x for about a 67% confidence level.) In this case, the low value is probably "too low" but that's because the StDev should be skewed upwards a bit because the spikes up from the mean are higher than the spikes down. Just eyeballing it, you can see that 95% of the data points fall inside ~5 to 25 ratios, but all of the 5% of the points that fall outside that range do so at the high end. You could do a +/- variance from the mean calculation if you wanted to consider this. The point is to show the reader that the $3959 number has considerable variance to it's predictability.

[bart]

Re: gold:wtic

...

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

Fair enough, and as soon as gold breaks above my minimum target of $3200 (since 2005, or technically 1982 but I can't prove it), I'll go public with my actual expected peak numbers. There's plenty of ways to defend much higher prices, even though they're nothing but best guesses.

At this point in time, just an equivalent to 1980 peak prices using my own (not Shadowstats SGS CPI numbers) way more conservative calculation of RCPI or RI (Real CPI or Real Inflation, aka CPI w/o lies) would have gold at about $6500 and silver at about $350 at their future peaks.

[raja]

Re: gold:wtic

I estimated 26-27%.

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.

Two things I glean from your post are:

1) If one invests in physical gold, there is no way around the 28% collectibles tax without paying "stiff fees" to set up a an IRA to invest in physical. You don't elaborate on what "stiff" means, but it doesn't sound appealing.

2) The best one can hope for investing in oil is "accepting a tax rate of 26% or so on futures", unless one has oil investments in IRAs.

So, unless one is willing to accept the counter party risk of paper gold or oil, there is no way to avoid paying high taxes. As c1ue said, "Any proxy investment in commodities also has the severe problem of counterparty risk," and paper gold and oil are both proxies.

I think that many people who hold physical gold have not done the math when it comes to calculating their potential profits, and as I said originally, "A chart accounting for the 28% collectibles tax would "take some of the luster off gold's performance". I would now say the same for oil, after you having shared your experience with oil investing.

The main problem with physical gold is that it's asset value appreciates, but is highly taxed. Compared to a business or a skill, where the asset value may or may not change, but the income is hopefully indexed to inflation (by that I mean, the value of a "widgit" in life should not diminish, so in a time of depreciating currency, the "widgit" is indexed to inflation.

[jk]

Re: gold:wtic

raja, even if it's in an ira, you have to pay taxes as if it were ordinary income when you withdraw the money. there are taxes all around. the reason you got jumped on is that you said the tax on gold was an issue, as if there were no taxes on oil investments, on ira withdrawals, and so on. you can't examine 1 option in isolation. your analysis needs to be comparative.

[globaleconomicollaps]

Re: gold:wtic

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

I'm doing a thought experiment now, where I visualize the driving forces for gold and oil as being different. Gold being motivated primarily by bank runs and central bank buying and oil by industrial demand. Regardless, If I just draw some lines through the curves, I get a radically different ratio.