I’ve often wondered, just how good of an investment is gold? I recently heard a commercial on tv that touted it as an investment that was “never worth zero”. That may be true, but is it really a good investment? Specifically (1) How much of a guarantee is it that it will grow? And (2) How safe of an investment is it otherwise?
If someone is willing to buy air time to try to sell you an investment that investment is probably not worth buying, at least not on their terms. Most things are “never worth zero.”
Gee, I’ve been wondering the same thing. Lots of threads here on this haven’t helped me decide. Nor has a few thousand years of lusting after gold. I’ve got books on it; read articles on it.
Apparently there’s no guarantee. It may not even be “safe.” If you hold the physical gold yourself, you pay a large premium and someone might steal yours. If you have someone else hold it, it’s hard to trust them.
On the other hand…there are lots of other hands.
Try “In Gold We Trust” by Bishop and Green for a starting point.
Full disclosure: I own a little IAU as my personal compromise, and have done well with it, along with some gold mining stocks. I will increase gold holdings as we get closer to the big World Financial Collapse. Which is coming. It’s all about timing, though, like the practical consequences of AGW. Are they 20 years away or 200?
The implicit assumption being made by people betting the ranch on gold is this. Since the beginning of the financial crisis and recession and as a direct result of the fed’s repeated (or perhaps continuous) programs of quantitative easing, the money supply has expanded at least 3 fold. This can be seen from one measure called the monetary base here - from just over 800B in 2008-9 to about 3000B now. That is extraordinary by any standard.
And if one were to judge solely by historical precedent, you would be virtually compelled to conclude that rampant hyperinflation should be the result. The only problem with that conclusion is that it should already have happened. So why hasn’t it?
I won’t claim to have a thorough understanding here, but what I believe is happening is that virtually none of the additional 2T dollars has ever seen the light of day. Specifically, if you look at excess bank reserves, they have increased, not coincidentally, by about the same amount. We were looking for a missing 2 trillion and that chart shows 1.7 trillion - close enough for govt work.
If this is in fact what is happening, then for all intents and purposes, as far as the economy is concerned, that money doesn’t exist.
However just because it isn’t a problem now, doesn’t mean it won’t EVER be a problem. Excess reserves mean that they can be moved at the discretion of depository institutions, meaning member banks of the federal reserve system. That money got there in the first place by such banks selling assets like treasury securities and MBSs to the fed. Eventually the fed needs to get these assets off of their books and drain all of this liquidity out of the system.
As long as the banks are content to leave the money in their reserve accts, there’s no hurry, but this won’t be forever. The real issue then will be how quickly will this need to happen and how good will the fed’s timing be?
If the fed waits too long to pull the money out and banks start using it to make a lot of loans, this could cause the money supply to spike and that would favor inflation.
If the fed jumps the gun and tries to drain liquidity too quickly, the economy could stall or even fall back into recession.
However a lot depends on how quickly the fed has to act. If the recovery continues at the current glacial pace, timing shouldn’t be an issue, but there’s no guarantee of that.
Gold peaked at around $1900 an ounce in Sept., 2011. Currently it’s at $1586. Doesn’t look as bad as the early '80s bubble, but it does look to me more likely that you’d end up buying high and selling low if you bought now.
gold went from about $300/oz in 2002 and climbed to nearly $2000/oz in 2011.it is now at about $1600/oz.
what does that mean? I don’t know. I once heard gold has no industrial value to justify the higher price. so without that will the price remain inflated solely on economic fears?
the best time to invest in precious metals would’ve been in 2007 when the crash started. live and learn.
There is after all a growing market in the developing economies which will continue as they expand their middle class - at least presumably. And I don’t think it’s getting any cheaper to pull the stuff out of the ground, in fact, I might be wrong about this but I’m pretty sure it’s getting more expensive due to a lack of easily accessible reserves and other factors.
I sort of doubt that justifies the current price and I have no idea at all what price might be justified. I could be completely full of shit on this, but I seem to vaguely recall that the cost to miners per ounce is somewhere in the area of maybe $400-500? IDK. I don’t know if that included all overhead or not or how they got that, but if I’m right, that might be at least part of the reason for the price increase in recent years.
Buying gold is easy. The hard part is knowing when to sell.
Gold isn’t an “investment”. It is a durable good, and therefore a store of value. The value of a given lump of gold relative to other goods (such as loaves of bread or euros) might rise or fall, but the gold itself isn’t an investment any more than a loaf of bread is an investment.
It’s possible to speculate on the price of gold and make money buying low and selling high. This also isn’t an investment.
How much is demand for things other than jewelry and hoarding? Virtually none. While a very pretty Precious, it doesn’t have a lot of uses. It isn’t a catalyst, you can’t eat it, it isn’t a building or machining material. It is too expensive to be used as an electrical conductor except by idiots.
Copper is King. It is used for all of those things and will continue to be.
It is however used in circuit boards as a plating because of its anti-corrosion properties.
Are you suggesting that my sandwich heavy investment portfolio might be over valued?
Exactly. Gold doesn’t change. If you buy stock in a company, the company may expand and make your stock worth more. If you buy cattle, they might have calves and increase the size of your herd. If you invest in a movie, the movie might sell ten million tickets. But if you buy a pound of gold, you will never have more than the pound of gold you started with.
You can make money on gold but only because the price of gold will rise and fall not because the gold itself will change. So buying gold isn’t really about gold. It’s a reflection of what direction you think the general economy is heading.
Emphasis mine.
If you buy a bunch of something because you expect the value to go up, that’s an investment.
What you mean is that gold isn’t a productive asset, in the way that a stock, or bond, or real estate is. Gold doesn’t pay dividends, and it doesn’t make more of itself. But it can go up and down in price, so you can invest in it.
That said, because gold doesn’t pay dividends or interest or rent, it is a poor place to invest the majority of your money. At that point, you’re just speculating. Might make out great. Might get burned pretty badly. The fact that gold has always been worth “something” doesn’t mean it’ll be worth more than you bought it for in any reasonable time frame. But as a small portion of your total portfolio as an inflation/currency collapse hedge, sure.
Proponents of gold are fond of sayings like “an ounce of gold has always been worth the price of decent suit” which suggest that gold will always be valuable. Such statements are vacuous and imprecise (a decent suit is not a well-defined amount). You shouldn’t base your investment decisions on aphorisms; you should base them on data and critical thinking. This (and many other pro-gold folkisms) are right up there with the idea that renting is “throwing your money away”. No it isn’t. It’s paying for shelter. You could just as easily argue that buying food is throwing your money away because you don’t have it after you eat it; you should buy a farm instead!
If other people are paying money to tell you how great their gold is, then that probably means that they think selling gold is better than buying gold right now.
Indeed, even if it is basically true that gold has always been about 1 ounce/suit (which is a great unit), then it’s a terrible investment. I could have invested in 1 ounce of gold in 1500 A.D. and it wouldn’t have appreciated, paid dividends, or paid interest in five hundred years!
Gold right now more or less tracks the DOW due to the fact it is traded in futures, etc. This of course isn’t real gold coins or bullion, just stocks/investments in Gold. But here’ it is as good or bad of an investment as any other traded commodity. But as has been said- it doesn’t pay dividends, etc.
Of course, right now, Gold is on a price bubble, which could burst sending it back down to $600.
Of course gold’s value changes. The only way you could consider it doesn;t change is to make it the standard and compare everything to it. A coupe of years ago (if anyone is really good at searching and wants to find it I’d be grateful) I went back thru time and compared gold to the price of a meal. Now, to meal- the price of a basic meal is even more unchangeable than gold. And it turns out that thru the centuries, Gold vs basic meal has had quite a few large fluctuations.
Now, there’s one thing Gold has that many other commodities (like Pork Bellies) doesn’t have (altho of course Silver has the same thing): value if “the shit goes down”. But the problem here is- how far does the shit have to go down to make your little pile of gold coins make you rich? It’s pretty specific and a rather narrow and unlikely range. I mean, if it goes down too far, canned goods, firearms & ammo will be worth a lot and gold little. If you have that firearm, you can just take the gold. And, you can’t eat gold. (See “The Rip van Winkle caper”). If the shit just goes down a little, then things will stabilize. But if Nuclear war or the Zombi Apocalypse occurs, Gold ain’t worth crap. If it’s just a big earthquake- meh. Canned goods again. And honestly if it’s a medium/large apocalypse like the dollar being devalued to zero, the guns & canned goods are *still *rock solid.
I’d like to see the exact scenario what the dollar is worth crap but Gold is King- with Guns & canned goods not being even better.
Personally, if I was thinking bad times, I’d buy a cheap used flakvest, a decent shotgun, 1000 rounds of ammo, and two months worth of food & water- along with some way to cook it. Or- maybe I already have done so, since this is just “REALLY bad earthquake” preparation.
If it matters to you whether the price of gold goes up or down, then you’re in the wrong game. I doubt the people running ads to convince you to invest in gold are heavily invested in it. They probably only buy gold to fulfill existing orders. They’re making money on every purchase and sale, that’s the way to make money by investing in gold.
Here’s an inflation adjusted chart of the price of gold over the decades:
Just a point of information - gold catalysis has been one of the biggest growth areas in catalysis research in the past 15 years, and there is now a massive research base around the metal for all sorts of catalytic processes - homogeneous catalysis using gold salts for fine chemicals and also heterogeneous catalysis with gold nanoparticles for bulk chemical / petrochemical transformations. It’s probably the most studied metal in the periodic table for new catalytic transformations in recent years.
