I have a bet with Paul Brodsky of QB Partners about Gold two years out.

Paul just did Nightline yesterday, and by sheer coincidence, I am doing Brian Williams (NBC) tonite at 6:30 — each discussing the Gold trade.

With Gold at $1275/oz  today (spot cash price), Paul took the over and I took the under on $2500, on September 16, 2012.

The bet: A dinner for 4 — us and our wives — costing whatever an ounce of gold goes for then.

May the best man win.

Category: Currency, Gold & Precious Metals, Media, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

53 Responses to “Gold Bet: $2500 Over/Under 2012”

  1. The futures give me an edge — look at price of Gold out that far — but Paul is trying to make a point regarding both inflation, currency devaluation, rampant money printing, and the magnitude of the parabolic shift in gold prices

  2. obsvr-1 says:

    BR enjoy your dinner and the expensive fine drinks to bring the tab up to $1300 or so

  3. Petey Wheatstraw says:

    I don’t know who will be buying dinner, but I think gold and silver will be substantially higher by then.

    I’m citing uncertainty (gold will do well in a deflationary environment as well as in an inflationary environment), as the reason.

    This does not look like a parabola, to me (yet):

    http://www.kitco.com/LFgif/au00-pres.gif

  4. fubsy_cooter says:

    A good wager.

    Although I am definitively in the gold bull camp over the long term, (aftter alll.it is a bull market, and the only secular bull at that) I would find it incredible for gold to cover a 100% move in two years. I do believe, however, that gold will eventually eclipse that mark by a significant margin…perhaps five years out.

    Over dinner, you may offer him a reciprocal dinner when gold does surpass that mark as it surely will. As we all know, secular bull markets end with wild eyed speculators being born in every nook and cranny of our society. By the time gold ultimately tops, cab drivers will be handing out business cards to alert passengers that they will gladly broker their next precious metals transaction. School teachers will be quitting jobs with benefits to hit the dusty Sierra trails to stake claims in the American, Stanislaus, and Kings rivers, and people will be camped out over night at coin dealers as if Jerry Garcia had risen from the dead and tickets are on sale for a reunion concert.

    Am I sign of an intermediate top? Perhaps, but I don’t think so. I’ve been holding silver, and miners since early in 2009. I’m simply an Old Turkey who can see the end game in the nonsense that is the global politic.

    Mitch Block

  5. bman says:

    I’ll be the chef.

  6. yoganmahew says:

    Poor tail risk analysis there Mr. Ritholz. You might want to read the Black Swan again. You’ve swapped the benefit of MickeyDs for the risk of paying for a steak from a talking cow at the Restaurant at the End of the Universe! :-)

  7. scouttie says:

    I’m more concerned about you “doing Brian Williams (NBC) tonite at 6:30″

  8. callistenes says:

    Your calls have been almost dead on for at lease 2 1/2 years. But my question is, if you’re in bookie mode, how many under are you handicapping it?

  9. Pool Shark says:

    Enjoy your $1,500 dinner Barry!

    I’m with Hussman; we won’t get any serious inflation until the second half of the decade.

    Now if you and Paul had agreed on 2015; I’d predict you’d be buying the dinner.

    PS, yoganmahew: I’d pay serious bucks to have dinner at Milliways… or even the Big Bang Burger Bar…

  10. Shnaps says:

    Lock of the year.

    Except that you may end up dining at Applebee’s.

  11. FrancoisT says:

    I’ll be the sommelier.

    “Monsieur will have wine with the Beef Wellington? I suggest Guigal La Turque Cote Rotie 2006. Un excellent Shiraz, Monsieur.”

    He He!

  12. TheUnrepentantGunner says:

    Francois: it’s an easy hedge for barry. Either 20 or so shares of GLD (i realize its supposed to be a 10-1 ratio but that way he can capture the upside or a few coins). Assuming GLD holds steady he wins a $1200ish dinner.

    Barry, if you win, may i suggest Talula’s table? Usually they do 8-12, but i think they could accomodate a smaller party for 1 night. And then you could buy the wine for your friend to reimburse…

  13. ironman says:

    Don’t forget to order at least one of these cheese sandwiches!

  14. NotQuiteSo says:

    Excellent bet! Reminds me of Buffet’s famous bet on hedge fund returns, or the Simon-Ehrlich wager. Whoever wins, you’ll have a good dinner.

  15. Jeff Malec says:

    The recent news out of the CME that they are offering a new micro Gold Futures contract (1/10 the full size) sure seems like a contrarian, top is in, headline to me… Good Luck Barry

  16. Eye Wall says:

    Barry, you sure you made a good bet? Throwing some probabilities against a couple price points:

    Lets say Paul wins by $1 with a 40% probability to get an expected value on the payoff:
    Gold = $2501 x .4 = $1000.40

    Lets say you win by a mile and give you a 60% probability of winning to bookend the 40% above:
    Gold = $1500 x.6 = $900

    Your breakeven on the payoff is around $1665 (given these probabilities) so you’re really betting that Gold will be lower than this, otherwise it doesn’t look like a rational bet. Not to mention the asymetric nature of this for you if you lose (e.g. Gold blows out to $3000) – your loss / dinner cost is potentially unlimited! Meanwhile your ‘payout’ is capped @ $2499. I think you just sold him a dinner Call option! :)

  17. MaciekKolodziejczyk says:

    Barry,

    The futures are irrelevant.

    They simply reflect interest rate (<1% per year) and carrying costs of gold (almost zero), as you are aware. That's why the Dec 2012 futures are quoted at 1299 as I write, just 2% higher than Dec 2010 futures (at 1275 now) and they will be 2% higher, even if gold goes 50% up or down tomorrow.

    Look at the predictive power of futures over the past 10 years, it is non-existing, just like S&P 500 (or nearly all other) futures are.

    Being a long-time gold/silver bull, 2500 $/oz prediction resonates well with me, but I also think this is overly optimistic. Gold returned 15.7% annually in the past 10 years (to Jun 30) and 23.4% annually in the past 5 years. 40+% annually is just too high, especially given te fact that 2 years ago it was 680 $/oz at the bottom of 2008 panic. This seems just too much for a 6 trillion market cap asset class. I think it is is too early for the parabola, and the inflation is not likely to move to 6-8% within 2 years (which could make the case for such an increase in gold's price).

    If you lose, count on me to fund the wine or apetizers ;)

    Best,

    Maciek.

  18. Chief Tomahawk says:

    “I am doing Brian Williams (NBC) tonite at 6:30″

    WoooHOOOOOOOO!!!!!!!

    Too bad I can’t watch it live … have to work then. Will look it up later on NBC.com.

  19. a handful of gold options in the $2000 – $2500 range would be cheap insurance for you

    I think the BRIC(minus the B) CBs will be the deciding factors in that trade. If they decide to jump into the pool in a big way they could rock the market. That would be a serious political move on their part.

  20. Arequipa01 says:

    How about using the proceeds of your wager to help people in greater need than you and your wife?
    If Au is @1850 on Dec 31 2012, why not give that to a soup kitchen like this one:

    http://www.ccspm.org/dorothy_day_center_info.aspx

    You can still eat at http://www.le-bernardin.com/, hell I’ll give a few hot tips. Here’s one: BOE.v
    Or how about…what’s the name of the new finance minister in Peru and what US multinational was/is (who’s keeping track, am I right?) secured his services as an ‘asesor’? I’ll make it easy. Ismael Benavides and CF Industries- will this set of circumstances express itself in the share price? I don’t know but I bet that they know in Marcona…

    Yeah, I know, killjoy. Je suis un croisante, donc, Mange moi!

  21. Ramstone says:

    Evening news doing a gold package indicates a top by definition.

  22. teddysalad says:

    I hope you enjoy the dinner. As much as the gold bugs want to believe otherwise, I think two years out we’ll be lower than we are now – possibly down to the 600-700 range.

    1) As a percentage of GDP, the gold price is significantly above it’s long run average. It’s not in 1980 territory, or even close, but it’s significantly above the post-73 mean and regression to the mean is downward from here.

    2) We’ve had a long run bull market that has brought prices up from $250 to $1250+ an ounce. There have also been a couple of significant breaks to the downside that have been reversed to new highs. This process tends to eliminate the long term bears and embolden the long term bulls. These type of expectations are consistent with late stages of a long term bull market. Very little upside from here and high risk of downside.

    3) Many market participants are fleeing to gold as a safe haven from other depreciating assets. The sluggish economy and weak stock market has a lot to do with that. As soon as the economy builds some positive momentum, which will happen in the next couple years, the market will rally and these people will exit gold. This will also put a big hit on those in gold for the appreciation, because once the short-timers leave they will not go back.

    4) Trust your feelings Luke. It just looks like a top to me. This surge might take us to $1500 and even higher if theres any more capitulation from the bears to be had, but longer term it’s just a matter of time. Eventually, something will break us to the downside. It doesn’t matter the reason.

    Gold is not tethered to the monetary system any more. It’s predominately used as an asset and will behave like one.

    Say hi to Brian for me.

  23. Wow. A $2,500 dinner for four? That’d be “Masters of the Universe” sort of stuff in my neck of the woods. No, take that back. I don’ t think you could reasonably find anywhere in my little town to spend $2,500 on dinner for four. At least not at the moment. What with all this deflation pushing dinner prices down at the McD’s, while gold prices push through the roof. Maybe $2500 won’t buy so much in 2012.

  24. dmlopr says:

    Barry, I think that’s a good bet. It could pass 2,500 over the next 24 months but it only matters what you have on Sep 16th, 2012.
    Honestly though, if we see 2,500 in two years we got bigger issues IMO than worrying about an expensive dinner bet.

  25. RC says:

    Very safe bet BR!!! You will easily win.
    I am predicting that the price by 2012 will be below 1000.

    World is not ending and this time it is not different.

  26. contrabandista13 says:

    Barry:

    Your range is Beluga – Big Mac….

    His range is Beluga – to you having to buy the Four Seasons restaurant for him.

    I sure as hell hope, for your sake, that there aren’t any Black Swans flying around out there….

    For my sake, I hope you’ll have to buy him the Four Seasons, I’ll be his best customer

    Best regards,

    Econolicious

  27. RC says:

    And this is not about the Mayan 2012 end-of-world prediction related situation, right :-)

  28. These 83 Analysts Believe Gold Will Go Parabolic To Between $2,500 and $15,000!
    July 3, 2010
    LORIMER WILSON

    Believe it or not but I have identified 83 economists, academics, gold analysts and market commentators who have developed sound rationale as to why gold could quite possibly go to a parabolic top of at least $2,500 an ounce to even as much as an unimaginable $15,000 before the bubble finally pops! http://www.munKNEE.com; By: Lorimer Wilson; Words: 705

    When I first began writing about such projections (http://www.munknee.com/2010/06/why-many-analysts-see-gold-going-as-high-as-10000/) I was satisfied with identifying 10 individuals who were of the opinion that gold would attain a peak greater than $2,500. That list has grown to 83 (see below) of which 47 believe that $5,000 or more for gold is likely. I encourage you to check out their articles and their rationale for such high gold prices in the years (and in some cases just months) to come.

    http://www.munknee.com/2010/07/these-70-analysts-have-sound-reasons-to-believe-gold-will-reach-parabolic-top-as-high-as-10000/

  29. wally says:

    You are almost always going to win if you bet against catastrophic change. It is always predicted but rarely, rarely happens.

  30. ashpelham2 says:

    Not sure about that wally…Catastrophies a-plenty the past 10 years of this old boy’s life, and I’m talking about credit card debt……Since 2000:
    Bush-Gore election meltdown
    Dot.com bubble POP!
    September 11 attacks.
    Sri Lanka Tsunami
    Space Shuttle explosion (Feb 03)
    Hurricanes Katrina, Rita, so on and so forth
    Numerous Afghan earthquakes
    Financial collapse of 2008-2009 (10?)
    How about the unknown damage from an oil spill in GoM?

    Am I leaving anything off?

  31. Robespierre says:

    Barry how is this a good bet?

    The better you do (lower gold) the less you “win”. The better he does in theory his wining have no upper end…

  32. DL says:

    I’m bullish on gold, but not to the extent that it can double in price over the next 24 months.

  33. obsvr-1 says:

    catastrophic change v catastrophe

    ignoring the temporary panic drop of 40% in fall of ’08, gold is up about 20% from the peak pre-crisis
    it is hard to imagine how gold will rise 100% in the next two years given the quiescence around null for inflation/deflation. If it does start a non-linear ramp then we will be witnessing the next bubble and those who are standing when the music stops will need to watch their golden a$$.

  34. DeDude says:

    So it will be more expensive for you to lose than it will be for him to lose. At least the odds are in your favor. Maybe we should set up an office pool on who will win.

  35. GeorgeBurnsWasRight says:

    Barry, be sure to set your improbability drive so you can invest one penny at the beginning of time in an interest-bearing account.

  36. Bsideriver says:

    They both know Barry’s got better probability of winning, so that’s why Barry accepted a limited upside.

  37. tammy says:

    wow, and I had to drop my health insurance today because I can no longer afford it.

  38. scott simpson says:

    I don’t know who will win this bet. What makes me so crazy and planning for the future and saving and investing so difficult is that gold could be $300/oz in 2 years, but eating at the world’s greatest restaurant may cost 1$ per person at that time. Or gold could be $5000 an ounce at that time but $5000 could be what it costs to eat at MacDonald’s, or could be what it costs to eat at the world’s finest restaurant. Deflation could be mild or severe, hyperinflation is hard to rule out. I am absolutely lost. Gold is at new highs, treasury yields are at multi generational lows across the curve, sovereign nations are orchestrating short squeezes on currency traders, the stock market is oscillating like an EKG of ventricular fibrillation, +/-5-10% every few weeks, bull/bear ratio of investors has gone from 52 wk lows to 52 wk high in like 3 weeks. Real estate- monthly new records in foreclosures but everyone says the bottom is close. The macroeconomic picture looks like an Escher painting. Stop this roller coaster I want to get off! But I don’t even know where off is!!! The “safe havens” appear to be in bubbles. George Soros says nothing is safe, that sounds about right. I don’t know if I’m just hysterical (probably), but this sound like what Von Mises describes and the end game of fiat currency and credit bubbles.

  39. scott simpson says:

    We should call Ben Bernanke and ask him what his 2012 target for the gold price is.

    Tammy, sorry about your insurance.

  40. RW says:

    What RC and Tammy said: All patterns including gold are topping out and it mostly looks downhill from here; not steep or apocalyptic necessarily, pretty flat on the whole I suspect, unless you can longer afford shelter or health insurance that is.

  41. robert d says:

    1. GOLD MINES ARE PRODUCING LESS AND LESS GOLD EVERY YEAR. YEP.
    2. THE GOLD PRICE DOES NOT DEPEND ON INFLATION…WITNESS—2010, AN ALL-TIME HIGH. YEP.
    3. GOLD REFLECTS INSECURITY IN THE FINANCIAL STABILITY OF THE WORLD. YESP.
    4. GOLD WAS $1050 IN 1980. TODAY’S PRICE OF $1250 IS ONLY UP 25% IN 30 YEARS. YEP.

    BARRY, YOU ARE THE LOSER I PREDICT BY A LONG SHOT. I’D BUY AN OUCE TODAY JUST IN CASE
    THE GOLD ETF (GLD) FAILS FOR SOME REASON IN ANOTHER SIGN OF INSTABILTY TAKING JOHN PAULSON DOWN WITH THE PANIC.

  42. scott simpson says:

    I don’t know who will win this bet. Gold could be $300/oz in 2 years, but eating at the world’s greatest restaurant may cost 1$ per person at that time. Or gold could be $5000 an ounce at that time but $5000 could be what it costs to eat at McDonald’s, or could be what it costs to eat at the world’s finest restaurant. Deflation could be mild or severe, hyperinflation is hard to rule out. Gold is at new highs, treasury yields are at multi-generational lows across the curve, sovereign nations are orchestrating short squeezes on currency traders, the stock market is oscillating like an EKG of ventricular fibrillation, +/-5-10% every few weeks, bull/bear ratio of investors has gone from 52 wk lows to 52 wk high in like 3 weeks. Real estate- monthly new records in foreclosures but everyone says the bottom is close. The macroeconomic picture looks like an Escher painting. The micro economic picture looks like Oliver Twist. Stop this roller coaster I want to get off! But I don’t even know where off is!!! The “safe havens” appear to be in bubbles. George Soros says nothing is safe, that sounds about right. I don’t know if I’m just hysterical (probably), but this sounds like what Von Mises describes as the end game of fiat currency and credit bubbles.

  43. Barry,

    Let me see if I have this straight.

    You made a wager – ostensibly at even odds, on the future price of gold. The details are unimportant to this discussion, but it’s interesting to note that the wager is on the price of gold, two years in the future (9/16/2012).

    You win if the yellow metal is trading at less than $2,500 per ounce, and lose when it’s above that price. That’s a very attractive wager, especially when the odds are even money. Who knows where gold will be priced, but we both believe that the chances are pretty good that you will win this bet.

    So what is the payout? Loser buys dinner for four, with the stipulation that the cost of the dinner equals the price of one ounce of gold on that future end-of- summer date. This seems to be a reasonable wager between some moneyed dudes.

    However, I must ask whether you have given any consideration to the nature of the bet?

    If you lose, you buy dinner for four, which would (almost certainly) cost between $2,500 and $3,000. If you win the bet, Paul Brodsky buys, but he may pay only $1,000.

    This is not the type of wager that I would have expected from you. I agree that your side of the bet is attractive, but the cost of losing is far from even.

    Mark Wolfinger
    http://blog.mdwoptions.com/

  44. Its taken 10 years for Gold to gain $1000

    Paul was willing to bet straight up that it would gain another $1250 over 2 years.

    After the bet was agreed to (Dinner) I suggested that to make it fairer to Paul, that Dinner be the cost of one ounce of gold. It allowed me to make the bet more interesting, and lay some odds in his direction.

    And even a $3,000 dinner means I am paying $1,500 for Paul and his wife (My wife and i get to enjoy the meal as well). So its not terribly an egregious payout of I lose

  45. pflantzdog27 says:

    Are there any restaurants in NYC where you can spend more than 2500 grand on dinner for 4? No drinks.

  46. pflantzdog27 says:

    2500 hundred not grand.. oops

  47. ItalicBold says:

    It may sound far fetched for the price to double over two years, however I bought some gold just over two years ago here in the UK for around 43o sterling, its now worth around 820 sterling. Still I would definitely have sided with Barry.

    Have you hedged this bet at all Barry?

  48. gms777 says:

    I don’t know who will win the bet, but when people around the world see a news story (like the one yesterday) saying that Congress is going to consider “legislation that would regulate gold-selling companies,” that will create fear, and gold loves fear.

    Our young president has yet to face a major crisis. Remember that gold went nuts in 1979 and 1979 due not only to domestic economic factors but also because that’s when the Iran-Iraq War started and the Soviets invaded Afghanistan.

    http://seekingalpha.com/article/225579-congressmen-weiner-and-waxman-set-gold-hearing

  49. JerseyCynic says:

    Has anyone read “Greenspan’s Warning on Gold” from Zero Hedge guest post: ATLAS JUST SHRUGGED
    via Adrian Douglas of GATA?

    superb comments –

    http://www.zerohedge.com/article/guest-post-atlas-just-shrugged#comments

    like this one from overmedicated…
    What could replace Fiat- ??

    commerce demands a medium of exchange that is recognizable (trusted), and, also flexible enough to cover most financial transactions from small items to home purchases..

    carrying gold to purchase day to day items is not practicable.

    So here goes an idea that if implemented would replace fiat ..

    A gold / silver backed Debit card.

    Plastic is trusted everyware today ,0 and 1′s are accepted and trusted..

    Just a thought.

    Carry the GOLD card ZHers for those big ticket items and the SILVER card for the rest.

    I expect this to happen and who ever does it will be the next Billy Gates.

    —————————-

    GATA has some interesting chat going on also

    http://www.gata.org/node/9019

    Here’s the link
    http://www.nysun.com/editorials/greenspans-warning-on-gold/87080

  50. TizzyD says:

    Barry-

    How about a post on your (possible) hedging strategy re this bet????

  51. victor says:

    To ashpelham2 the only thing you’ve left off your list of catastrophes is “another normal day on Planet Earth”. Here’s one for the future (2012): Tea Party movement takes over Washington, term limits becomes law, incumbent Congressmen/Senators sent to Gitmo for long term re-education and rehab.

  52. tom brakke says:

    I posted a chart in research puzzle pix that shows that the price of gold would have to accelerate further. In terms of probabilities, it looks like you’re on the right side of the bet.