The wealthy people who own gold do so defensively. No one from Jim Chanos to Warren Buffet to Bill Gross to George Soros is saying to put all of your money into gold. Only an idiot would say that.
There are plenty of investment gurus on the internet and most of them couldn’t find their ass with both hands, a GPS and a native American guide. For the most part these people know only marginally more than their followers - which ain’t sayin’ much. But they all say you’re crazy if you DON’T drink the kool-aid. Well, that’s fine. Call me whatever you like. We’ll see who ends up surviving financially. But if you believe so strongly that you’re right, then please, put every penny you can beg, borrow or steal into gold and then let us know how that works out for you. But don’t get upset when the rest of us lemmings don’t follow you over the cliff.
As I said earlier (maybe in another thread), I bought gold and platinum from 2000 - 2008. As of last year I saw that the prices for precious metals were being driven up largely by fear and demand factors relating to developing countries and decided it was time to pull back.
So I don’t have a problem with owning precious metals and I think that it is a good defensive position as long as you limit it to no more than maybe 10% of your total net investment. However that is a very different position than advocating one jump on gold with both feet when it has been repeatedly hitting new highs. That’s the time to be selling not buying.
The deficits you note are not sustainable. Everybody and their dog knows that. They were incurred for a reason, or rather reasons - to keep our financial system afloat, recapitalize the banks, provide economic stimulus, etc. Only someone completely out of touch with reality thinks that will go on indefinitely.
And before you start taking everything even the respectable analysts say too seriously, consider the unfortunate case of Meridith Whitney (banking guru du jour) - fully 2/3rds of her calls over the past year or so have been wrong. So if someone that well respected can be wrong, then who are the idiot gurus that you’re listening to?
Gold owner with a substantial capital gain on his position checking in, but not to talk about bullion.* Rather, I’m here to make the case for a diversified portfolio of dividend-paying shares as an inflation protector. The protection takes the form of divi growth, which can sometimes exceed inflation substantially, potentially giving an investor an income stream that’s growing as quickly as or faster than prices are rising.
Some companies commit explicitly to above-inflation dividend growth. For example, one company whose stock I own has set a goal of raising its divi by U.K. retail price inflation plus 2 percentage points for its current fiscal year. Others pay inflation-busting divis because business is good, they’re confident about their prospects or they’re in industries - such as tobacco - where cash flows can be substantial even after investment in the business and so they have to do something with all that money. As examples, one of my companies raised its first-half divi by 19% when it reported results in July, and another boosted its payout for the latest fiscal year by 26%.
An income investor is vulnerable to dividend cuts or stoppages, of course, but that’s why one diversifies, to reduce the impact of any individual reduction or halt. Sometimes there are red flags that may herald a divi cut, but finding them would likely require looking through and being able to interpret a company’s financial statements, IMV. In other cases entire industries may be best avoided, such as after a bubble - for example, I would never present myself as any kind of financial genius, but after all the market dislocations related to mortgages in 2007, it seemed clear to me heading into 2008 that not holding financial shares was a good idea and that divis were at risk across the FIRE (finance, insurance, real estate) sector, the main beneficiary of the preceding bubble.
*For anyone who’s interested, I went into gold (I bought over about 15 months starting in November 2002) because at the time I felt that U.S. monetary policy was much too loose and as a result the country probably was headed for negative real interest rates. Too bad I didn’t take my own advice and buy platinum in December 2008, when the price fell below the price of gold, but that’s another story.
We’ve done this plenty of times before with Susanann. She refuses to be swayed by logic and clings to innumeracy. A few points I don’t think anyone else has noted yet in this thread:
She conveniently ignores the fact that the Dow has been spitting out dividends over the past 80 years, which makes the claim that gold has been a better store of value than the stock market during that period incorrect.
The claim that stocks are worthless because almost all companies go bankrupt is without merit. The bankruptcy of individual companies is not a threat to a diversified investor.
There’s nothing wrong with having a small portion of an investment portfolio be in gold. But it’s useful because it countertrends the stock market, not because it’s a better value store (it isn’t), or because it’s less volatile (it isn’t), or, really, any of the other arguments Susanann is making.
What Susannan is taking about is a major financial crisis. If you want to protect against that, then gold may well be a good way. But if you just want to protect against spikes in inflation, forget gold - follow some of the other suggestions in this thread, e.g. TIPS.
Gold is on a huge bubble right now, it could burst at any time, back down to some $600 per oz.
Most of the dudes telling you to buy gold are those whith lots of bux invested in Gold, and they will dump it as soon as they think the time is right.
Now, if you happen to have some gold coins or similar- fine, hold on to them. But buying more is foolish right now.
I would just distinguish between numismatic and bullion gold coins. I always used to get the limited run proof sets. These tend to retain their value better even if the melt value of the coins happen to fall. Other things being equal, the premium you pay for them will be retained into the secondary market should you decide to sell them at some point. I never had any intention of selling mine regardless of where the price goes because I think that in the long run, due to their scarcity and growing demand, that the long term price is likely to be up regardless of the vagaries of the metals markets.
They folks on the TV who are telling you to buy gold are doing that because they want to sell you something - not because they think it’s an appropriate investment and they just want to help you out of the goodness of their hearts. And, what they want to sell you is gold - so, their own strategy is to sell gold, not buy it. Classic pump-and-dump.
Except that if you get the kind of financial crisis where all the standard investments are worthless, then you don’t want to be holding onto gold, either. If that’s what you’re trying to prepare for, then what you should be investing in is canned food and ammunition.
I agree that buying gold is silly. Now is the time to sell gold, IMHO - just this past Sunday, I dug up an old gold watch that once went through the laundry and sold it for the gold value. (Guy only gave me $180, which is less than I thought it would fetch, but still, I’m not going to use it anyway and now is probably close to a high.)
My thinking is that now is the time to buy real estate. RE is down and mortgage rates are low. I’m looking to buy a rental that can pay the financing costs, if such exists.
One thing to consider is that whatever you do to protect against inflation, there’s one thing that you can’t control and that’s your defined benefit pension (for those who still have them). If it’s based on “average salary” (versus “final salary”) it will be devalued by inflation. So depending on the details of your pension plan you may be more or less at risk due to inflation.
Yes, you are correct, that is what I am talking about. I see way too much debt in the United States. I think the US dollar will collapse.
The current danger of a dollar collapse is unprecedented, never before has the US dollar been in danger of becoming worthless. Because the danger of a financial collapse is abnormally so much more serious today, it means a wise person will hold an abnormal amount of gold to protect his wealth.
If your expectation is that the US dollar will collapse, the logical thing to do would be to include other currencies in your portfolio. Convert some of your US dollars in Euros, Yen, Canadian dollars, and what have you.
In a financial collapse, **bullion **is better. Gold is gold, and gold bullion can be bought and sold everyhere. Everyone will accept gold bullion for payment. Gold bullion buy you anything you want from NYC, to Paris, Moscow, Tokyo, HOng Kong, Pago Pago, Kenya, Haiti, or Taylor Nebraska.
You do NOT want to hold numismatic coins in a financial collapse. The only way to sell numismatic coins is to a coin collector, and “wealthy” coin collectors might be few and far between in a world wide financial collapse. You wont find anyone in Pago Pago that would be willing to buy your numismatic coins in a worldwide financial crisis.
Most of the foreign currencies are also already in bad shape… or worse. The financial crises, the danger of fiat paper currency becoming worthless, is world wide.
