OK, So, What About Investing in Gold

Great Debates
1

Often, when I’ve nothing sensible to do, I wander the radio, listening to raving loons rave about politics and I’ve noticed something that makes my curiosity bone itch. Extreme, screaming righties and perfectly sensible lefties, they all sleep on Sleep Number beds. Because you can adjust your mattress’ firmness. A pity we cannot adjust the firmness of the person we share the mattress with, buts that another question…

They all invest in gold. About the only subject they agree completely, gold. Stephanie Miller and Ed Schultz, totally into gold. Hugh Nitwit and Michael Medfly, totally all about the gold, best investment evah!

So, I gotta wonder, like, howcum? Are people who listen to radio politics susceptible, for some strange reason?

Now, I’ve read some about the subject, some people sneer most snidely about “gold bugs”, being people deluded about the investment value of gold. They point out that the supply of gold always increases, because gold doesn’t corrode, it doesn’t “go away”. The gold you find at the bottom of the ocean after four hundred years is just as gold as the stuff smelted yesterday.

Others says its the perfect hedge against deflation/inflation/infatuation, you name it. If the value of the dollar goes down, the value of your gold goes up, and you have the same approximate value in terms of buying power.

Now, here, I have an opportunity to say something I seldom can: I don’t know. I have no opinion. Don’t have any gold, either, and that may be why…

So lets just say I’ve got a million bucks. Am I smart if I buy a million bucks worth of gold, and stash it away?

(For our purposes, lets assume we’re just talking plain old bullion type gold. No limited edition Liberian medallions, any of that crap, just plain ordinary gold…)

Is there a left/right stance on the subject? If so, what is it? If not, why not?

2

Guys like Steve Forbes are HUGE gold bugs, because of its historical usage as a measurement of value. My father-in-law (right wing nut job) and father (right wing nut job) both follow it closely. I think that there IS a link to the right wing survivalist nutters, but…

Around 4 years ago I had a chunk of cash from a legal settlement sitting in a checking account. My father talked me into using it to buy gold coins (nothing collectable) at a local coin shop near him. I wired him the cash, and I have done quite well with it. I probably SHOULD sell it, but I don’t need the money and it DOES make a nice inflation hedge as well. I will probably give it all to my kids someday.

3

Gold isn’t so much an investment as an attempt to protect your savings from inflation. As you say, the dollar can wobble about or become worthless, but gold should still retain its value against other commodities.

But if the dollar crashes to the ground, a piece of paper that says you own X amount of gold might not be worth anything either. So if you really think the dollar is going to crash you better get physical delivery of that gold. And then you better figure out a way to keep it safe.

Or you could purchase other durable goods that will also retain their value. I understand ammunition and canned peaches are hot this year.

4

As a hedge against inlation, sure. But as insurance against a suddenly worthless dollar? What kind of upheaval would be necessary to make the US dollar completely worthless? Surely if things turned into a Mad Max/survivalist dystopia, gold would only be valuable for adornment. I wouldn’t trade my canned peaches and ammo for any amount of it.

5

In recent times (say the last five years) gold has done very well. In the long term, it’s a terrible investment. Say that you had invested all your money in gold in 1979. Over the next thirty years, you would only have increased the dollar value of your investment by 20-30%. Meanwhile, inflation has increased a lot more than that, so you’d have a lot less buying power than you started with. Just about anything else would have done better: stocks, treasuries, real estate, foreign stocks, corporate bonds, or even a garden-variety savings account.

6

Gold is one of the 3 precious metals (platinum and sliver are the others). You are right…it doesn’t corrode and is relatively impervious to the elements. It’s also quite rare (IIRC, all of the gold ever found could be put into a cube less than the size of a city block.

As for the pros and cons of investing in gold, I found this on a quick google search:

No…that wouldn’t be smart IMHO. Not unless you think the world might be going Mad Max or something (in which case I’d invest some of it in methane burning cars, leather jackets, food, water, really sharp boomerangs and, though it might hurt, a few guns and some ammo). As a hedge you might want to invest SOME of that money in gold and other commodities…but you’d be better off investing the rest in some kind of diversified mutual fund or something like that…actually, in several, plus maybe some bonds or T-Bills if you want to go all conservative.

I don’t think there is a right/left position on gold (except that some loony righty types want us to go back to a gold standard for our currency).

-XT

7

But there’s a big range of catastrophes between heavy 70s style inflation and Beyond Thunderdome. Plenty of countries have seen their currencies become worthless–Weimar Germany, the Confederate States of America, Tsarist Russia, Zimbabwe, and so on.

Replacement of the current government with a new government that declares the old currency worthless would make you wish you had bought gold, and that’s well short of a radioactive cannibal mutant scenario.

But you have to balance the likelihood of demonitization of the dollar. It’s not a likely scenario. So how much of your capital should you put into gold coins buried under the kitchen floorboards, and how much should you put into investments? Because that gold isn’t going to appreciate in value relative to other durable goods, it’s just going to maintain its value.

8

The last time a lot of people around me were telling me I should put money into gold, it was 1977. Nothing much has happened to the price of gold since then, overall.

9

about 15 years ago, I attended a lecture by a banker/investment advisor, and he summed it up neatly.
When someone in the audience asked about gold as opposed to other investments, the banker said:“The problem with gold is that people treat it like a religion, not an economic investment. So I rarely talk about it…I’ve have learned that people make decisions to buy gold or not — based on faith, not based on my professional advice.”

10

I think the OP’s experience tells us much about media markets - that regardless of liberal or conservative, the voices on the radio are really trying to get your ear for the advertisers - actual politics, or (horrors!) policy - doesn’t matter to them nearly as much as the ability to sell advertising time.

11

Bullion itself is a clumsy investment vehicle.
You’ll pay a premium to acquire it, storage fees to store it (or worry about your stash somewhere), assay fees when you sell it, and another premium when you do sell it.
Consider gold funds or mining stocks if you like gold.

Should you like gold? The simple answer is “Yes” but the complex answer is “yes and no.”

I disagree that a Mad Max scenario would make gold worthless. It would do exactly the opposite, and throughout human history gold has repeatedly been the absolute standard to be desired. And of course, that’s what drives cost: supply and demand. If government currencies fail, gold will buy you that last bushel of wheat. It always has, logical or not.

What about just a crappy economy scenario? Well right now we are a titchy bit nervous short-term about deflation, but I personally am betting on inflation long term. We are printing money under the pretense that the next administration and the next generation will get spending under control. Place your bets. Historically the least painful–sometimes the only–way governments bail themselves out is to print inflated money.

The “no” is that I could be absolutely wrong. For which I will apologize but not refund your money.

In general, you’ll make more money placing all your bet on a single thing, but since you can also lose more money that way, you’ll probably sleep better taking the mil and diversifying.

12

Just to be clear…I wasn’t saying that a Mad Max type scenario would make gold worthless. I was saying that if you really think it’s going that way I wouldn’t invest ALL of the OP’s million dollars in gold. But then, regardless of the economic scenario I wouldn’t invest all or even the bulk of the million in gold anyway. Just enough as a hedge…and maybe some bling. Perhaps one of those solid gold Mercedes medallions, or a really gaudy chain as thick as a python…

-XT

13

I expect in a Mad Max scenario the value of your gold would be directly correlated to your ability to defend yourself!

14

Well, and eat. But yeah…that’s why I said you might want to invest in some other things as well. It’s hard to eat gold, and while I suppose you could hit someone over the head with a gold brick, it might be easier to use a gun or spear gun or one of those post apocalyptic Gurkha knife thingies that always seem to crop up in those kinds of movies…

-XT

15

Yeah, but did any of those countries start out from the position of strength that the U.S. is in? If the U.S. were to undergo upheaval in the way any of the above countries did, wouldn’t that be a lot more serious, in the States and in the world at large?

16

NOt exactly true. In 1977, gold ranged between $120-170 US. Today it closed at $956/ounce US. Slight difference.

Everything depends upon your choice of starting date for your investment and your ending date.

If you bought gold on Jan. 17, 1980–gold was about $750/ounce US.
Today, 29 years later, you could sell it for $956/ounce US. A tidy profit of $206/ounce US. Unfortunately, that works out to 27% profit, but only about 1%/year. You lost big time.

If you bought gold in the Summer of 1999 at $275/ounce US and held it til today and sold today at $956/ounce, you made 247% profit, divided by nine years equals about 25% profit per year. You win the prize.

My opinion is that gold, within the next 3-5 years will settle in the range of $400-500/ounce US, once the uncertainty of the world economy gets somewhat straightened out.

I know that if I were in the business of trying to make a good living by selling gold coins to people, and I had less morals than I do(always have), I’d advertise in a big way on Christian Radio, RW radio. I’d sell old US golds coins, rather than modern bullion, emphasizing how Roosevelt “confiscated” all the gold back in 1933.

17

Another advantage of selling old coins is that the rubes will pay a premium for their rarity. A premium that is wiped out by an apocalypse, when the coins are just worth bullion.

I lack your inconvenient ethics so, if I had the money to invest in a business like you describe, I would have no reservations. The Roosevelt tie-in is good for another 20% premium!

18

Gold is extremely expensive just now.

19

And that can change in an instant. Gold’s value is only what people are willing to pay for it, and historically that is extremely flexible.

20

There’s more than three. Rhodium and palladium are both traded, the latter of which has its own ISO currency code.