You want to buy Gold????

You want to buy Gold???

And I’ve seen people advocating buying gold on this board. You buy gold when there is world-wide inflation. When the prices of commodities are rising because there is too much currency around and the value of the currency is falling. When you can’t buy as much (gold, bread, smartphones, etc.) with your cash as before.

However, the problem the world is having now is the danger of deflation. Governments can’t get inflation up even to the goal of 2%. And they are trying! In Europe and Japan there has actually been some deflation (prices falling). That’s the result of not enough cash, and not enough spending (by consumers and by governments). It’s the result of “austerity” in Europe. Is a time of deflation, and of absence of inflation, a time to buy gold? Really? But I’m looking at it just from a fundamental point of view and from a common sense point of view. I’m sure that that is trumped for some people by the “little squiggly lines” on a chart.

The only reason to buy gold now is if you are worried about the end of civilization as we know it, in which case it probably won’t matter what you are investing in, and it will be pretty hard to buy bread with those shares of a gold ETF.

Gold, by the way, is up all of 0.7% since the stock market bottomed on Feb 11.

Gold is down 34% since its peak in 2011. That’s a bunch.

This is a low-growth, low-inflation, falling commodity price environment. There’s a good reason that gold is down 34% in less than five years. Deflation is a heck of a lot more worrisome right now than inflation. Think about your favorite stock, growing nicely every quarter in spite of this slow growth environment. Now, which do you think is likely to do better in the in next year, gold or that favorite stock? No guarantees, but more likely.

Best,

Saul

23 Likes

Over the last 200 years, if you invested $10,000 (and reinvested any dividends or interest), this is what you’d have:

Stocks: $5,600,000,000
Bonds: $8,000,000
Gold: $26,000

-Chris

4 Likes

Over the last 200 years, if you invested $10,000 (and reinvested any dividends or interest), this is what you’d have:

Stocks: $5,600,000,000
Bonds: $8,000,000
Gold: $26,000

-Chris

The price of gold in 1816 was roughly $20/oz. It is now $1,256/oz.

$10,000 invested in gold 200 years ago would now be worth about $628,000.

The point is still valid even though the math was off.

Jeb
Holder of some gold
Explorer Supernaut
SWIR and NUAN Ticker Guide
You can see all my holdings here: http://my.fool.com/profile/TMFJebbo/info.aspx

4 Likes

Perhaps they had adjusted for inflation

1 Like

The price of gold in 1816 was roughly $20/oz. It is now $1,256/oz.

$10,000 invested in gold 200 years ago would now be worth about $628,000.

Are you sure? It depends on how we’re defining value. Perhaps in absolute dollars this is true, but inflation-adjusted no. $20 bought a heckuva lot more in 1800 than now.

http://goldsilverworlds.com/gold-and-silver-prices-over-200-…

I believe Chris was correct in terms of purchasing power, although you are correct in terms of denomination.

Pete

but inflation-adjusted no. $20 bought a heckuva lot more in 1800 than now.

Going back just to the 1940’s when I was a kid, a New York subway ride cost a nickel. I remember when it went up to a dime. It’s now about $2.25 or $2.50. A new car cost $1,200 instead of $25,000.

The price of gold was $19.84 in 1816.
It was $20.67 in 1916 (didn’t change much in 100 years)

In 1948 when I was a kid it was $42 (when a subway ride was 5 or 10 cents). Now it’s $1200 so it’s gone up 30 times (just about kept up with inflation more or less). That’s not counting storage costs on the gold each year.

The S&P 500 for instance closed 1948 at 14.83. It’s now at 2050. That’s up 138 times. It’s not counting dividends on the stocks, compounded.

Saul

8 Likes

I wonder if anyone has noticed the never-ending TV advertising for gold and silver starring William Devane.

What’s in your safe ?

I don’t have a safe Rosland Capital.

I like William Devane as actor but these commercials are stupefying in their unending persistence.

Enough already :slight_smile:

Frank

2 Likes

Great point, Frank.

If Devane had taken his own investment advice why would he he need to be making commercials for additional income?

Actors are among the most over paid of professions. Again, why the need to for additional income?

Jim

Warren Buffet is not a gold bug. I paraphrase from him:

“Gold bullion and coin make no sense as an investment because it holds no potential for added value, it is pure price speculation. First you pay someone to dig it out of the ground. Then you pay someone else to refine and cast it. Then you pay someone else to stand guard over it when you stick it back in an underground vault.”

Jim,
I beg to differ. True, some very, very few actors make a lot of money, but the vast majority struggle and often hold a menial second job just to eat regularly.

Far more consistently overpaid are fund managers who make a huge amount of money for performing no better than average at best. Or maybe it’s CEOs who often take down enormous remuneration even if the business they are in charge of under-performs all of their financial targets.

3 Likes

Perhaps you are right, Brittlerock.

Maybe our actor needs a MF subcription.

Jim

1 Like

What happens with negative interest rates and dropping the $100 bill are factored in?

Or beyond that, eliminating paper currency completely? Will gold become an alternative currency? If so, will demand go up?

This scenario is quite imaginable, and already implemented in some countries.

Owning gold is useful only in very limited circumstances.
To use post WW! Germany as an example it was very useful in the Weimar inflation. Once Hitler seized control it was a lot less useful, having any beyond a wedding ring was fatal if you were caught. God is bulky and heavy and thus hard to hide. Diamonds then became the only means of wealth transportable outside the German borders.

I have fire insurance because of the remote possibility of my house burning down.I have a little gold and a few unmounted diamonds for similar reasons, in case the economy burns down. I expect it won’t burn down, but just in case.

I had a friend of a friend stuck with all his assets in Great Britain when they had stiff currency controls. He wanted to leave for the US so ought a sailboat, hid as many hard assets and British currency deep in the lead keel, and sailed it to the US. Single handed.

The first gold bull market was predictable, since the US government was holding down gold price , it was bound to rise once the support was removed. That is not the case today.

3 Likes

I would generally agree, gold is not an investment, it is a speculation. A speculation that you must buy when it is completely out of favor to make money on, otherwise, because it doesn’t produce anything you can’t win.

Unfortunately, when I look at the price of gold, (http://www.macrotrends.net/1333/historical-gold-prices-100-y…), I see that it was valued at $349/ounce in 2001. I also see no reason it couldn’t return to that level – stated inflation since 2001 isn’t that high.

I’ve read arguments that governments around the world are printing money at record rates and that we will see that this will devalue currencies in the future. This will probably eventually be true, but until the panic starts you aren’t going to see a sustainable jump in gold.

Unless there is a panic, what we will see is that gold’s bubble from 2001-2011 is slowly deflating, and it still hasn’t completely deflated (more than a 60% loss from here to get back to $349). You could make money on gold if you wait for it to deflate, but you would probably be better off investing in SKX.

4 Likes

In the Doomsday scenario, if you believe in such things, then gold is the safe haven for all your money. Trouble is, doomsday doesn’t ever come. The gold bugs love to remind us of stock market crashes, depressions, world wars, etc. when gold becomes king.

-----
Invest wisely my friends
CMFSoloFool
Ticker Guide: AFSI, NTGR and OTEX

OT!

I saw a movie about the gold rush in Yukon. Bandits steal some gold and take off in a canoe downstream. The canoe capsizes in the rapids and the bandits go to their death weighed down by the gold.

End of bandits. The story goes on to a happy ending. :wink:

The Captain

I would generally agree, gold is not an investment, it is a speculation. A speculation that you must buy when it is completely out of favor to make money on, otherwise, because it doesn’t produce anything you can’t win.

I’ve read arguments that governments around the world are printing money at record rates and that we will see that this will devalue currencies in the future.

Gold and the USD currency are increasingly becoming hedging instruments used largely by governments these days, especially as international economies become more integrated into the global economy. So while true that governments are devaluing their currency, it is all part of a global cyclical phenomenon. Foreign governments have been buying up gazillions in US treasuries in the past 20 years, and they are shifting back and forth between gold and US currency to hedge their investments.

When the USD index was nearing 130 in 2001/2, gold was very cheap around $400/oz because of the strength in the $USD, hence there was little need for hedging. But from 2002 to the end of 2008 the USD index fell to the low 80s at the height of the crisis. That’s when the U.S. was bailing out “too big to fail” companies and banks, and pumping money into the economy to avoid a liquidity crisis. This is all relatively well correlated in gold, where we see it rise to $1800 in 2012/13. And then the Fed decided the crisis was over and started signalling they would take the punch bowl away. Hence, hedges started shifting back into the USD and gold fell back below $1100/oz.

Unfortunately, when I look at the price of gold, (http://www.macrotrends.net/1333/historical-gold-prices-100-y…), I see that it was valued at $349/ounce in 2001. I also see no reason it couldn’t return to that level – stated inflation since 2001 isn’t that high.

The USD rally from the low 80s to 100 since mid-2014 is all fueled by the Fed raising rates, while the rest of the world is still a step or two behind devaluing their currencies. You can see the correlation getting tighter as the Fed rhetoric on raising rates has softened since December, weakening the USD from 100 to 95, while gold simultaneously turned upward from under $1100/oz to over $1250/oz.

The big swing factor now is China, and as China devalues its currency there has been an exodus from Yuan to USD. It may yet have some legs, but as China stabilizes and the Fed normalizes the USD will resume trading in a range, and I suspect gold will even out also. I don’t think gold will sink back below $400/oz any time soon. The Fed is not crazy enough to let such a catastrophe occur.

-----
Invest wisely my friends
CMFSoloFool
Ticker Guide: AFSI, NTGR and OTEX

3 Likes

‘Trouble is, doomsday doesn’t ever come.’

It sure came for the Japanese.

It sure came for the Japanese.

Would you kindly explain further?

-----
Invest wisely my friends
CMFSoloFool
Ticker Guide: AFSI, NTGR and OTEX

1 Like

The market produced decades of dead money from about 1985, even if you were really kind and included dividends and inflation.

Let’s hope we don’t enjoy the same experience.

1 Like