GOLD, 'nuff said.

I hate to once again be the guy with bucket of cold water, but…

During the time frame you picked (1995-present) gold achieved slightly over 8% annual returns. During the same time stock market achieved similar returns. For instance NASDAQ returned slightly under 8%. But if we allowed to play time-machine game and pick winners – you can easily pick much better winners. Without even trying hard e.g. Microsoft returned well over 12% [wink]
 
OPM said:
I hate to once again be the guy with bucket of cold water, but…

During the time frame you picked (1995-present) gold achieved slightly over 8% annual returns. During the same time stock market achieved similar returns. For instance NASDAQ returned slightly under 8%. But if we allowed to play time-machine game and pick winners – you can easily pick much better winners. Without even trying hard e.g. Microsoft returned well over 12% [wink]
Click to expand...

True, but... stocks ain't money.

Around a year ago I bought silver at $24 per ounces for Silver Eagles. Today they are valued at $41 per coin. That’s a good gain for under a year. Not too long ago I bought 17 Morgan and Peace dollars for $17 per coin. Today the melt value alone is $29.54. Now maybe there are a lot of stock that did as well over that short amount of time, but stocks are not ‘cash on hand’. They need to be cashed in before they become money. Silver can be traded right now and it’ll be easier if bad things happen. If bad things do happen, I’d rather be trading in gold, silver, food, knives, water, etc than I would in stocks and bonds. So, although some stocks can brag of the gains of precious metals, they are not as immediately useful in times of major trouble. That said, I would also invest heavily in brass… as in ammo!
 
In 1995
Gold was $380/oz
The DOW was 4150
The NASDAQ was 817

Today
Gold is $1585 up 417%
The DOW is 12400, up 300%
The NASDAQ is 2773 up 339%

The stock markets can go to zero, gold coins have a face value and can only drop to their face value. If the stock market went to zero, gold would not be. The tax rate *is* higher on gold at 25%. With a time machine you could pick a stock that would give you better returns, but I could also pick some better entry and exit points for gold with that time machine.

Gold is really a wealth preservation tool. The only way to profit from gold is to sell at a time when gold is overbought...the price has been artificially driven up by speculation. Personally I don't think its possible to time the market with any kind of precision. I've always been told that historically 1oz of gold has always been able to buy the same basket of goods/services no matter what condition the nations currency was in.

Those who bought gold in the past couple years and are trying to figure out when to dump it are playing a market timing game. Probably a smart idea given how the .gov is destroying the currency.
 
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Bernake said flat out that QE3 is on the way and silver went up a couple bucks in a couple days since the announcement. I am not able to afford gold and I think silver has more room to move upwards relative to gold, so thats where my money is. I hate the gamble of the stock market because money is too precious for me to lose. I feel pretty confident putting some of my savings in PMs right now due to the uncertainty of the dollar, but I also long for the days when keeping money in a savings account made sense. I think those days may be gone for good.
 
I was told that silver would be a better choice. The advantage of the silver is you have smaller amounts to trade off for smaller items if needed. He was saying that silver was going up faster then gold. Then another friend reminded me if you invest in ammunition you can always get the gold and silver from those that never invested in ammunition.
 
Harleynut said:
I was told that silver would be a better choice. The advantage of the silver is you have smaller amounts to trade off for smaller items if needed. He was saying that silver was going up faster then gold. Then another friend reminded me if you invest in ammunition you can always get the gold and silver from those that never invested in ammunition.
Click to expand...

Eh, maybe, maybe not. You could go and rob a bank right now and you might or might not get away with it too but is it worth the risk? In hard times it will be exponentially more difficult to take from people who's sense of vigilance is heightened. My advice is store both that you aquired lawfully.
 
Posting a graph like that with "nuff said" as if it proves anything is silly.

I've seen stocks that did well for decades tank and, prior to the tanking, a long up graph with the caption "XYZ corp; nuff said" would also "prove" those were good investments.

Gold is like a firm with lots of hard assets and no debt - it can do down in value but, but the chances of going to nothing (or even to "face value" in the case of gold) is about a close to zero as you can get. That doesn't mean you won't see a decade when Gold stays flat or actually declines.

A big advantage of gold is that is does tend to preserve value in the long run, and does not need to participate in the economy to do so. In order to invest securities or cash at a profit, and maintain liquidity, it's generally necessary to keep the asset in a supervised form - which means it can be seized for legal judgements, nursing home bills, etc. Hard assets like gold allow those with a survivalist mindset to maintain significant liquid off-book assets.
 
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GomerPile said:
In 1995
Gold was $380/oz
The DOW was 4150
The NASDAQ was 817

Today
Gold is $1585 up 417%
The DOW is 12400, up 300%
The NASDAQ is 2773 up 339%

The stock markets can go to zero, gold coins have a face value and can only drop to their face value. If the stock market went to zero, gold would not be. The tax rate *is* higher on gold at 25%. With a time machine you could pick a stock that would give you better returns, but I could also pick some better entry and exit points for gold with that time machine.

Gold is really a wealth preservation tool. The only way to profit from gold is to sell at a time when gold is overbought...the price has been artificially driven up by speculation. Personally I don't think its possible to time the market with any kind of precision. I've always been told that historically 1oz of gold has always been able to buy the same basket of goods/services no matter what condition the nations currency was in.

Those who bought gold in the past couple years and are trying to figure out when to dump it are playing a market timing game. Probably a smart idea given how the .gov is destroying the currency.
Click to expand...

Generally speaking you make valid points. However, my main point, which was better phrased in Rob Boudrie’s post, was that a gold price chart with thread title ‘nuff said is hardly self-interpretive. Does it illustrate that gold is in a bubble, which is about to burst, or is it supposed to show that “the good time will roll forever”? I am sure that even youngest of us on this board can remember similar charts prior to tech and housing bubbles. The truth is – this chart does not show anything about the future. There a lot of “technical analysts” aka “mechanics” who go broke trying to make money on predicting patterns. In this case Finalygotabeltfed is not even doing that. He just shows a chart and if I understand his intent, implies the “good times will roll forever”. All I am trying to say – bullshit! I can pick hundreds of charts that show MUCH better profits. Stocks that earned 20-30% or even more and not the 8% that gold did. Does that mean we should rush out and buy those “winners”?

I am always puzzled when people say gold has never been zero and in the same sentence they talk about face value. Gold is nearly $1600, so face value is zero in my book. Furthermore, although it is true that in the past few thousand years gold could have been traded for something else, however, it is not true everywhere and was not true in distant past. According to studies, for most of man’s existence we did not use or value PM. Furthermore, even as Europeans were killing each other over gold, many Native American, African and Australian tribes never used PM (some of course did). Some remote tribes in Africa and Australia still do not value PM. Although you might say semantics (and I would agree) – there is a cornel of wisdom here that should not be ignored. PM is only valuable while you live in developed society. After Umbrella Corporation releases the T-Virus your gold won’t help you much, but shares in Umbrella might be of value. [grin]

I also love when people talk about PM vs. inflation and they say something like you could buy a nicely tailored set of cloths with one gold coin in Roman times and you could buy a nicely tailored suit today for one gold coin, thus that’s the evidence of zero inflation in gold. They were saying that when gold was $500 and $1000 and $1500. Yet the prices of suits stay nearly the same during this time. The reason this con sounds reasonable to some is the price of a “nice” suit ranges from $200 – 20,000. So no matter what gold does, someone will be able to honestly say they can buy a nice suit for only one gold coin. However, the actual numbers show that gold has a tough time keeping up with inflation and is timeframe sensitive. Meaning, depending on the time interval you choose to analyze, you could mathematically show that gold had significantly underperformed during those years. Furthermore, returns on PM are closely correlated to returns on stock market. There a few reasons why, but probably the main is that the real demand for PM comes from industries that use them as raw material. For example, if economy is slowing down, house remodeling and new construction is likely to slow down, so fewer mirrors will be needed, so less silver will be bought by mirror manufacturers. Less demand = lower price. Mirror manufacturers consume pounds of silver daily and they are some of the smaller silver consumers. If tomorrow medical equipment producers and other major consumers of silver figure out a better input than silver – silver price will drop so fast that melting it down for fishing sinkers might be financially viable choice.

PS – DOW does not represent market, but only 30 largest firms. Plus you would want cap weighted and not price weighted index. Russell 3000 might be more appropriate. Also, you’ll want to analyze total returns - meaning include the reinvested dividends. It’s more helpful to view data on annual basis.
 
I do generally agree with what you are saying. I think you can use gold as an investment. Depending on your trading skills, it will make or lose money. In that arena, there may or may not be better investments you can make.

If you think that the financial markets will blow themselves up someday, then you want tangible assets. You can buy booze, guns, ammo, etc but its hard to efficiently trade these items for goods/services you need. Lets say the S has HTF and you need some chickens, you visit your local farmer with a bottle of Patron for trade. The farmer offers you 4 chickens for the bottle. You paid $80 for the bottle in todays dollars so those chickens cost you $20 each which is not a great deal. The farmer just wanted tequila for margaritas and has no idea what good tequila tastes like, so any old swill would have worked. Neither of you got what you wanted. PM's solve this problem in a way few other assets can.

If the S never HTF and you want to cash in your gold then you will need to hope it is in an overbought condition (priced high and you get back more wealth than you put in) or you need to have enough patience to wait for its price to correct. There have been times whe the price was low for a long period of time. Unlike a stock certificate or a dollar bill you should always be able to get your wealth out of a gold coin.

OPM said:
Generally speaking you make valid points. However, my main point, which was better phrased in Rob Boudrie’s post, was that a gold price chart with thread title ‘nuff said is hardly self-interpretive. Does it illustrate that gold is in a bubble, which is about to burst, or is it supposed to show that “the good time will roll forever”? I am sure that even youngest of us on this board can remember similar charts prior to tech and housing bubbles. The truth is – this chart does not show anything about the future. There a lot of “technical analysts” aka “mechanics” who go broke trying to make money on predicting patterns. In this case Finalygotabeltfed is not even doing that. He just shows a chart and if I understand his intent, implies the “good times will roll forever”. All I am trying to say – bullshit! I can pick hundreds of charts that show MUCH better profits. Stocks that earned 20-30% or even more and not the 8% that gold did. Does that mean we should rush out and buy those “winners”?

I am always puzzled when people say gold has never been zero and in the same sentence they talk about face value. Gold is nearly $1600, so face value is zero in my book. Furthermore, although it is true that in the past few thousand years gold could have been traded for something else, however, it is not true everywhere and was not true in distant past. According to studies, for most of man’s existence we did not use or value PM. Furthermore, even as Europeans were killing each other over gold, many Native American, African and Australian tribes never used PM (some of course did). Some remote tribes in Africa and Australia still do not value PM. Although you might say semantics (and I would agree) – there is a cornel of wisdom here that should not be ignored. PM is only valuable while you live in developed society. After Umbrella Corporation releases the T-Virus your gold won’t help you much, but shares in Umbrella might be of value. [grin]

I also love when people talk about PM vs. inflation and they say something like you could buy a nicely tailored set of cloths with one gold coin in Roman times and you could buy a nicely tailored suit today for one gold coin, thus that’s the evidence of zero inflation in gold. They were saying that when gold was $500 and $1000 and $1500. Yet the prices of suits stay nearly the same during this time. The reason this con sounds reasonable to some is the price of a “nice” suit ranges from $200 – 20,000. So no matter what gold does, someone will be able to honestly say they can buy a nice suit for only one gold coin. However, the actual numbers show that gold has a tough time keeping up with inflation and is timeframe sensitive. Meaning, depending on the time interval you choose to analyze, you could mathematically show that gold had significantly underperformed during those years. Furthermore, returns on PM are closely correlated to returns on stock market. There a few reasons why, but probably the main is that the real demand for PM comes from industries that use them as raw material. For example, if economy is slowing down, house remodeling and new construction is likely to slow down, so fewer mirrors will be needed, so less silver will be bought by mirror manufacturers. Less demand = lower price. Mirror manufacturers consume pounds of silver daily and they are some of the smaller silver consumers. If tomorrow medical equipment producers and other major consumers of silver figure out a better input than silver – silver price will drop so fast that melting it down for fishing sinkers might be financially viable choice.

PS – DOW does not represent market, but only 30 largest firms. Plus you would want cap weighted and not price weighted index. Russell 3000 might be more appropriate. Also, you’ll want to analyze total returns - meaning include the reinvested dividends. It’s more helpful to view data on annual basis.
Click to expand...
 
Rob Boudrie said:
Gold is like a firm with lots of hard assets and no debt - it can do down in value but, but the chances of going to nothing (or even to "face value" in the case of gold) is about a close as you can get.
Click to expand...

Or said a slightly different way, gold...at least physical gold that you posses...doesn't have counter party risk. People default on debts, corporations get run into the ground, fiat currencies get printed into oblivion, but the value of your gold doesn't depend on someone else upholding their contractual or moral obligations.
 
Cardinal Ximinez said:
Or said a slightly different way, gold...at least physical gold that you posses...doesn't have counter party risk. People default on debts, corporations get run into the ground, fiat currencies get printed into oblivion, but the value of your gold doesn't depend on someone else upholding their contractual or moral obligations.
Click to expand...

Precisely. Counterparty risk and potential for added privacy are the two main advantages of holding physical PM. If it was not for counterparty risk, solution to market downside protection would be to simply buy a protective Put with a strike price at whatever the minimum value of stock/market you were comfortable.
 
I buy more silver than I do gold. But I buy more brass than both combined!

Having stocks is okay if that is the investment you want but there is an intermediary between you and your money. You cannot immediately get to your money because someone else has possession of your money. So you have to ‘request’ that someone you have never met send you your money. And, when you do get to your money from the intermediary the government is going to take ‘their cut’ of your profits. And the government can – and does – change the taxation rules. They can tax your profit as Capital Gains or just regular income. Or, if they want, they will create a new, improved tax to make sure you pay your fair share. The government can always change the rules negatively impacting your investments. Not a nice thought!

My silver and gold is bought for personal reasons. It is not as an investment like the stock market. If the SHTF (including the dollar devaluation), I hope that those metals will have value. I believe they’ll have more value than stocks in the market after the SHTF. If I am wrong, no harm – no foul. So I ‘wasted’ a few dollars. But if I am right, my family is in a better position than if I never collected any metals.
 
And the government can – and does – change the taxation rules
Click to expand...

There was a HUGE change starting with stocks bought in 2011 (or was it 2010?). You now have to declare the cost basis when you sell the shares. This is not just a change in procedure, but it prevents someone with shares bought with different pricing and holding periods from waiting until the end of the year and choosing the optimal strategy. For example, if you have a big losing trade late in the year you might prefer that the earlier trade be of low cost shares since the losses offset the profits but, absent such a losing trade, might prefer to designate higher cost shares as those sold. While purportedly to improve collection of taxes, the side effect of denying end of year optimization in allocation of trading reports is, in the aggregate, a tax increase.

The government can always change the rules negatively impacting your investments.
Click to expand...

It can also establish reporting requirements for anyone buying precious metals from you, making it very difficult for you to sell in any meaningful quantity at "brokerage spread rates" rather than the retail storefront "buy at retail, sell below wholesale" terms available on a cash basis.

It's one thing to take a Krugerrand down to the local dealer who may give you 90% of value if you are lucky, but quite another to try to liquidate $100K or more worth of gold while getting with a small single point spread from the current market price at which identical form factor gold is being sold to the investment community.
 
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Rob, you are correct that the government can change the rules on owning precious metals. They did so in 1933 to steal all gold own by the general public and it worked just fine for the government… not to good for the ‘free’ people of the USA. But I have no inclination to exchange my metals for paper money at some local dealer. If I ever need to use the metals, the dealers will probably be the last place one would go AND paper money would be the last thing for which one would trade. I only have it in case the SHTF, I think it’ll make good barter material. Good Lord willing, that’ll never happen and I will leave it to the kids in such a form where they don’t have to claim it as part of the ‘death tax’. I view it as an insurance policy and little more.
 
Harleynut said:
I was told that silver would be a better choice. The advantage of the silver is you have smaller amounts to trade off for smaller items if needed. He was saying that silver was going up faster then gold. Then another friend reminded me if you invest in ammunition you can always get the gold and silver from those that never invested in ammunition.
Click to expand...

Finalygotabeltfed said:
Eh, maybe, maybe not. You could go and rob a bank right now and you might or might not get away with it too but is it worth the risk? In hard times it will be exponentially more difficult to take from people who's sense of vigilance is heightened. My advice is store both that you aquired lawfully.
Click to expand...

The original quote may not be intended as you seem to have read it. But then, of course, it might very well have [laugh]
There are those (Rawlings, etc...) who advise to stock up on common ammo calibers above and beyond your own personal needs for barter purposes. In the event of a serious SHTF situation, those who were able to put aside precious metals but are in need of ammo would likely be looking to barter/buy from someone who has the ammo and is now willing to trade.

Cardinal Ximinez said:
Well, with no debt deal yet, the yellow metal may do pretty well here.
Click to expand...
At the moment gold and silver are each up 0.75% in overseas trading, so maybe they're starting to hedge now just in case.
 
I don't know much about precious metals in the way of investing...
When I look at the graphs, it doesn't make sense to me to invest. I could be wrong. There has been so much gold talk the past few years with the impending financial doom of our and other financial systems. I just don't feel that in a financial collapse you'll get it's worth in return - by buying at the current price - nor do I feel it will help in the dreaded SHTF scenario. Again, I'm not against investing in metals as investments.

When all the dooms day-SHTF scenarios get applied, I think they're being applied wrong. You'll want you're gold for AFTER the collapse, when the system is being rebuilt. Buying metals, instead of other needs, now is like buying a roof rake on day 5 of a Giant NorEaster. You can get it, but you're not getting it's actual worth. Maybe it WILL hit 3000 and ounce like the mad speculators are saying, but that's still not a sure sign to by now, unless you plan on dumping it at it's peak, which can never really be determined... what goes up, must come down.
 
You don't have to be a doomsday scenario type of guy to appreciate gold. Where else would you park cash right now? Well, besides a mattress. ;-)

I Just don't see a lot of great alternatives at the moment whether you think we're heading for collapse or not.
 

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