Now this part I am curious about. I wonder how many people are taking possession of their gold or just believing it will be there when they want to cash it in.
Considering the density and current price, you could probably store $1 million of gold in a pretty small safe deposit box.
Personally, if I had a significant amount of gold, I’d be selling it right now. The gold market has all the hallmarks of a bubble about to burst.
Quoth Martin Hyde:
You should also mention that it depends on how far you are from retirement. If you’re still 30 years away, you can afford to take more risks, and ride through fluctuations in the market. If you’re 5 years away, though, you want to wait until the next time your current investments are doing reasonably well, and then start moving them over into something relatively stable.
A US dollar is currently worth 1/1600th of an ounce of gold. Are you telling us that the US dollar very soon is about to double or triple, or more? in value?
In view of the upcoming additional tens of trillions of federal deficits, and the likely default of United States debt if not this year then very shortly, why would you think the value of the US dollar will go up?
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Hi Susanann 
Great job in this thread
I think Spoke probably means gold is overvalued at the moment. If the price of gold drops soon, even just to 1500 an oz., and the dollar doesn’t drop that fast, you could buy more gold at a lower price if you sell it now. Gold, like any other commodity is likely to be undervalued or overvalued at any time.
Do you think gold is undervalued, overvalued, or just right at the moment? I’m curious how you feel about that.
I knew the chart was out of date - it was the only one that I could easily Google that showed the constant-dollar (i.e. inflation-corrected) price. (It gives it in 2010 dollars, which are pretty close to 2011 dollars - that’s why the lines converge at the end).
For some curious reason, the gold-trading sites all had their charts in nominal dollars, showing a continuous upward trend due to inflation.
And while gold has been a good investment for the past 10 years, it was a horrible one for the previous 20 - it lost about 80% of its value between 1980 and 2000.
Susanann - the dollar doesn’t have to double or triple in absolute value, it only has to double or triple relative to gold. If the supply of new buyers dries up, and the existing players have to cover their margins, gold could fall relative to the dollar the same way real estate fell a few years ago, or tech stocks in 2001, regardless of what’s happening in the wider economy.
And in the wider economy, the dollar may well go up in the next few years simply because the Euro may collapse first. Yen and sterling aren’t looking too healthy either. Provided the US avoids outright disaster, the “flight to quality” may be a powerful impulse.
And even if disaster strikes, the economists still can’t agree whether the country’s more likely to fall into an inflationary or a deflationary spiral. There’s no law that economic bad times mean inflation and the collapse of the currency. The Great Depression, after all, was a time of falling prices.
You are effectively saying that gold is a hedge against inflation. Well, its not really much more of a hedge against inflation than any other commodity. Gold has in fact increased in value over the last few years largely due to speculative pressure along with a general increase in commodity prices.
You know what else is a hedge against inflation? Short term bonds. Short term interest rates tend to be slightly above the inflation rate so if you keep your money in a money market and keep reinvesting the interest, you will tend to keep up with inflation.
You have basically condemned the entire civilized world to ruin. What is gold worth in that hellscape? Will it buy a can of beans?
No, we don’t expect the value of the dollar to change. Right now, a dollar is currently worth about a third of a Big Mac. Very soon, it will be worth… still about a third of a Big Mac. It’s the value of gold which we expect to change radically.
We could do this with other commodities, if you prefer. We could compare things to the price of oil, or silver, or frozen orange juice concentrate. And by comparison with any of those commodities, the price of gold is currently bubbled and will soon pop. You could, I suppose, claim that the gold is staying constant and everything else will jump in price, but that’s a far more complicated description, and doesn’t really do any good.
Based upon their ever worsening debt, both the US dollar and the Euro will collapse.** “Quality”**? Are you joking? There is no “quality” at all in the currency of a country that is running never-ending multi-trillion dollar deficits in BOTH it federal budget AND in its Balance of Trade.
The value of the dollar isn’t tied to the price of gold any more than the value of the florin was tied to the price of tulips.
I’m saying gold is overvalued.
It simply isn’t true that gold has remained constant in value, and an ounce of gold will buy pretty much the same amount of other goods whether you’re in 1910 Indiana, 2011 Berlin, or 1305 Samarkand. The only way gold could always retain its value is if we simply define value as a certain weight of gold, and therefore one ounce of gold will always be worth one ounce of gold.
But that is of course ridiculous. If that’s the case, then every good always retains its value. A US dollar is still worth a US dollar, so the US dollar has retained its value perfectly!
The US has never run a multi-trillion dollar federal budget deficit or trade deficit. The largest US trade deficit was $790 billion in FY 2006, and the largest federal budget deficit was $1.4 trillion in FY 2009.
Following Chronos, I prefer big stable companies with dividend paying stocks over gold. It is pretty safe yet shows growth. My portfolio is 0% gold. I’d use your own head before following my example if I were you though, everybody.
I think international companies’ stocks will tend to keep their value relative to inflation just like gold tends to do, only they pay dividends, which can be rolled over into more stock, which translates into a growing pile of shares. And the dividends grow over time too, if things go well, so it is like it is thrice-compounded. The stock value goes up; the number of shares increases; the dividend per share increases. Meanwhile an ounce of gold is forever one ounce of gold.
$1.4 trillion PLUS $790 billion = ** $2. 190 TRILLION**
$2.2 Trillion dollar deficits are multi-trillion deficits
A deficit in either one is bad, but deficits in both is much worse. Both are bad. The combined effects of both make it worse. Both deteriorate and lower the value of US currency. One of them floods the country with excess dollars, the other floods the world with excess dollars. Deficits are excess dollars. Even if we balanced the federal budget if we continued to have trillion dollar trade deficits the dollar would go down. A federal budget deficit combined with a Balance of Trade deficit makes the value of a dollar go down more. Huge deficits in either one will destroy the dollar. Huge deficits in both will destroy the currency faster.
So, does the possibility of scientists discovering a way to make cheap synthetic gold factor in to the goldbug mentality at all, or is it simply assumed that this will never happen?
Your schadenfreude sickens me.
It’s assumed that will never happen.
Synthetic gold probably won’t ever happen (at least, not economically), but that’s not the only thing that could crash the price. We might also develop an economical technique for mining it from seawater, or from asteroids. Or, of course, we might just have a really lucky strike in a conventional mine, even without technological advance.
This is an unfair characterization. Drunken sailors stop when they run out of money.
More seriously: comparing gold to dollars or stocks is complex because value is a relative thing. If we use the gold standard, then by definition gold never changes.
Any currency (including the dollar) is valued only because it can be exchanged for something else of value, such as food or shelter. How much of that you get for the currency will change, and this is the ultimate measure of value. However, we normally express value of one medium of exchange in terms of some other medium of exchange. The dollar is compared to the euro or the yen, ignoring that they all float against bread or rice or gasoline… which also fluctuate against each other.
It’s less evident that the primary value of gold is a medium of exchange also. Thus, while the value of gold as measured against gold never changes, what you can get for the gold will change. This is even more true than one would think because you generally can’t directly exchange gold for clothing or housing or food, but must first exchange it for some currency (like the dollar) and there is often significant “loss” in doing so.
Typically gold is seen as a hedge against inflation, but it is a hedge that does not produce income. Land may be compared to gold, in that it “never becomes worthless”. (“Never” is too strong a word, but gold can also become worthless in extreme circumstances.) Land is less immune to inflation, and may loose value even relative to other land, but can also gain real value and can produce income.
Basically, all financial decisions are tradeoffs. Investing in land or gold or bonds or stocks can all be good or bad decisions depending on circumstances. A specific investment may be a good choice for one person but a bad choice for another.