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Gold versus inflation

MarkB_MI

MarkB_MI

Well-known Member
Location
Motown USA
A number of my friends here continue to insist that gold is a good "investment", their primary argument being that it consistently beats inflation. Actually gold is more a commodity or inflation hedge rather than an investment, but never mind that. Does it actually beat inflation?

It's a bit tricky to look at gold in the long term because we don't actually have a lot of history to work with. Gold ownership was illegal in the US until 1975. For the next ten years, gold prices fluctuated wildly until they stabilized in the mid 1980s. So let's look at how gold has done since 1985.

In January 1985, gold was trading around $400/ounce. It's now at about $1300, so gold has risen 433 percent over the past 19 years. Inflation has risen about 220 percent in that same time period, so gold did beat inflation. But that's mainly because of the gains gold prices have made since 2002. Gold prices were flat or even negative between 1985 and 2002. Gold would have been a lousy inflation hedge in the nineties.

But what happens if gold continues its current downward trajectory? If gold drops below $900 an ounce, which is definitely possible, that would erase the gains which gold has made against the dollar.

Now if we're going to treat gold as an investment rather than a hedge, this is all a bit silly. Investments should be compared against other investments, and the US dollar is not an investment. Let's compare gold against the S&P 500: In January 1985, the S&P was around $170. Today it's at $1880. That's a gain of 1100 percent! To match that gain, gold would need to be trading at $4400/ounce. Not only that, the performance of the stock market has been very consistent over most of the past century. While gold was stagnant in the nineties, for example, the stock market did quite well.

Now if you like the shiny stuff, go ahead and buy it. But don't delude yourself into thinking it's a sound investment.
 
Actually gold CAN be a good investment if played right. Buying and holding gold is a dumb move. If you buy low and sell high then you can make money.
An old timer told me 20 years ago, When inflation is low and in a state of normalcy gold should be the same value as a mans new suit....$400, and that is when to buy, as soon as it skyrockets due to oil crisis, massive printing of money, or other threat to stable money then sell when you see it go to $800 or higher per ounce. I made money off of a Gold mutual fund after slick willy got in office. Buying gold bullion is not smart IMO cause you will have to sell it (how do you do that) and the risk of theft. If you look at gold in the very long term.....Decades actually gold has done poorly.

That old timer if he is still alive is in his mid 90s. He taught me a few things.
The best way to make money on an investment is for it to pay dividends........Buying gold bars wont do this. But.......many stocks do.
 
Why is gold valuable to start with?

It is used in some electronics. Other than that what use does it have that is necessary to life.

Jewelry is not necessary. Looks nice but not needed to survive.

In a globe collapse of the economy are we really going to be looking for gold or for food and shelter?

For that reason I don"t invest in gold.

What am I missing that makes gold wanted?

Gary
 
That is something I have wondered myself.
In a real collapse of the US and or world economic system I would think that Silver coins would have more of a use than gold. Think of it like this, money is worth 1/10th of what it is today, in the course of a year, scary. Gold goes to $4000 per ounce cause the dollar is scrap. Go to a gas station and ask for a fill up with a $4000 coin.......A $150 silver coin would be more usable I would think. Just speculating here.
Fuel/Oil/food/firewood/other items can be bartered.
 
A better alternative could be gold mining stocks. If the bottom really falls out gold would go up . . . . but you can't eat it and it's difficult to trade with. About all you can do is trade it back to the same worthless dollars you started with.
 
I believe one should NOT put all his eggs in one basket so gold, just like silver or stocks and bonds and mutual funds etc etc should only be part of a diversified portfolio. There's no harm in investing in gold or other precious metals as a hedge just like there's no harm in investing in stocks or bonds or mutual funds.

Some like Gold or silver or other precious metals as an investment AND THATS THEIR FREE CHOICE AND RIGHT while others may instead prefer stocks or bonds or mutual funds AND THATS THEIR FREE CHOICE AND RIGHT.

There are some who don't consider stocks as a good investment and some who don't consider Gold as a good investment TO EACH THEIR OWN

I've personally done quite well with a diversified investment plan. I've had some great gains in precious metals, a few stocks, and likewise done well with Mutual Funds BUT NO WAY ID PUT IT ALL IN GOLD OR STOCKS

NOW THATS WHAT ID CONSIDER A BAD INVESTMENT, HAVING ALL YOUR EGGS IN ONE BASKET, REGARDLESS IF GOLD OR STOCKS OR BONDS ETC.

As I always say DO NOT RELY ON ADVICE FROM LAY PERSONS ON A TRACTOR FORUM, but consult local trained competent PROFESSIONALS for legal or investment advice. If you want to make an investment and risk money based on the opinion of one person here (including yours truly) GOOD LUCK

John T
 
About a week or two ago, the middle income earners of Canada surpassed the USA in wealth and spending ability. This past week, it was announced that communist China will become the largest economy in the world by the end of 2014. It was announced just a day or two ago that the U.S. economy leaped forward by a blazing 1/10th or 1 percent. Now, if investing in gold makes you faint and turns your stomach and stock investments do not, there are two places right there to invest your money, Canada and China, both managed and guaranteed to out produce the U.S. economy. I understand that Mexico is closing in as well.

I forget now. What was the name of the captain of the Titantic, and was it ever decided whether or not he too did that on purpose?

Mark
 
(quoted from post at 05:46:15 05/04/14) Why is gold valuable to start with?

It is used in some electronics. Other than that what use does it have that is necessary to life.

Jewelry is not necessary. Looks nice but not needed to survive.

In a globe collapse of the economy are we really going to be looking for gold or for food and shelter?

For that reason I don"t invest in gold.

What am I missing that makes gold wanted?

Gary
Click to expand...

My thought too. I've said as much on the doomer boards I frequent. Gold is only valuable to those who deem it valuable. If the poop hits the fan and you come to me with gold and want to buy a lamb, you're walking away empty handed. I don't know how to tell gold from any other similar appearing metal. Same for silver. Bring me salt, pepper, vinegar, medicine, tools....something with real value.
 
Based on the advice of my professional investment counsellor, I have some invested in "BRIC" Brazil Russia India and China for the very reasons you mentioned. I'm undecided to leave it there or pull it out and have a meeting next week to decide. As I said below, NO WAY Id put it all in Stocks or Bonds or Mutual Funds or Gold DIVERSIFYYYYYYYYYYYYY Gold may be fine and likewise the other choices WHO KNOWS LOL

John T
 
Wondering why gold is valuable reminds me of an old Twilight Zone. Some thieves stole some gold and were going to sleep, in special containers for 100 years. It turns out in the end the last one tried to buy a drink of water in the desert with the gold. The wife of one of the passers by asked her husband "wasn't gold worth something at one time?" he said "yes, (as he threw it on the ground) until they found a way to manufacture it"....got to love that show.
 
If Gold vs The modern US Dollar conjured up in 1913 were a baseball game and each year were an inning since the score started at 20 to 20 because an ounce of Gold sold for $20 now at the end of 100 innnings the score is Gold 1300 to 20
for the Dollar.
The smart money in the world namely the Chinese have been buying Gold like crazy.Countries buy and hold Gold so why not individuals? AND when the US Dollar crashes and burns there'll be many here crying the blues just like after the real estate crash. And they're not making 60-70 Billion ounces of Gold up out of thin air each month like they are Federal Reserve Dollars.What the USA is doing with the currency has been tried over and over before and it always ends the same and it will this time too failure is guaranteed.
 
From 2003 to 2013 gold increased in value 1.6% per year. I guess compared to a CD the return was not that bad but gold pays no interest nor dividends annually like stocks/bonds do.
 
The "professional" investment people put me into WorldCom,GM bonds and some BP that went south.No thanks.The professionals wiped thousands of peoples life savings out with Enron.I can beat the stock and gold markets buying and selling a few old cars and tractors.From what I see most of those hedge investments are just scams with promises of big returns.
 
China might become the largest economic system in the world but.......Their growth rate cannot be sustained due to the following facts.

1. China only has 25 years of coal left.
2. China cannot build enough nuclear plants to generate electric power in enough time.
3. China's Hydroelectric power cannot meet demand.
All industrialized societies only function and are prosperous when ALL of the country has electricity. Think about what the USA was like before 1930. Most rural areas did not have electricity.
China cannot get enough electricity capacity in place to sustain itself in 20-30 years.
 
You seem to post lots against ownership of gold. I wonder why? Gold is indeed not an investment, in my opinion. Rather it is a hedge against all the crooked politicians and banksters who are in the process of robbing the country. The continuous printing of paper dollars, not backed by anything guarantee that the middle class will be picked clean. Mark-B, if you have the guts, do a little real research. Read about the Weimar administration in Germany after WW1, for one, before you send out any more posts with your miss-information.
 
Mutual funds exist to spread the risk across many stocks. In the long term.......30+ years stocks have done well. Bonds too have done well. I have a bond fund that has quadrupled since 1997.
 
lets face it, there are many good investments out there, many driven by the 'supply and demand' and more often, by created shortages causing panic buying. So, the very savy investor is doing the opposite of the crowd. Not easy to do, as logic and emotion are not easy to control, when you are risking your own money.
 
Meanwhile the U.S. is the "Saudi Arabia" of coal but we're not suppose to use it to save the planet... though we sell it to China as I understand. Gold will really shine when paper money loses its luster.
 
Not really Gov'ts of countries will try to accumilate Gold over everything else while trying to convince the suckers that their paper they print has value.If a piece of Gold has no value to you why in the world would you value paper or worse yet figures on a compter screen?Lot more paper around than Gold.
 
LOL I didn't mean big time hedge fund or junk bond and Wall Street professionals, I meant local trained experienced reputable investment counsellors and experts that have proven themselves trustworthy. I also meant Id trust them BEFORE non trained non professional non expert Billy Bob and Bubba "opinions" like some posted here. This is too big of a risk to take advice from lay persons posting on Tractor Forums, I still say its less risky to trust local trained experienced competent professionals but I agree with you, NOT big time Wall Street hedge fund and junk bond speculators lol

Still to each their own, its anyones FREE CHOICE as to how to invest, if any of us could predict the market we would have far better things to do then hang out here lol

Best wishes, fun chattin with ya

John T
 
LOL,those local professional experts are the ones I'm talking about.They work on commission so sell whatever there paid to do.They wanted 2300 to invest 50000 into a fund that paid 7% dividends.
Those professionals don't know anymore about the stock maket than anyone else.On 60 minuites a while back monkey's throwing a dart at a board with listed stocks out preformed seasoned
professionals.
 
There's a lot of local 'trained experts' whom I wouldn't trust with two cents of my money in terms of their investment advice... because just about every damn one of them has something to sell you. Sadly, I don't hold much more hope for this forum either. To each their own in the investment racket.

Rod
 
Okay, I thought you were talking about the big Wall Street Hedge and Junk Bond dudes. Id rather trust a local trained professional however, then some non trained non professional Billy Bob or Bubba opinions here on a Tractor Forum. I still wouldn't trust a hedge or junk bond salesman grrrrrrr

To each their own however, throw darts or trust your brother in law or Billy Bob or Bubba or a professional WHO CAN PREDICT THE FUTURE???

Very fun chat yall, best wishes with your own investment choices

John T
 
Somehow you forget about the 600 it lost in the last three years... and that was pretty real money to those who bought it at 1900.

Rod
 
I agree with you, there are also some local trained professionals I wouldnt trust either GRRRRRRRRRRRRRRRRRRR. I guess a person could throw darts or flip coins or consult with a trained professional or consult your know it all brother in law or some non trained non professional Billy Bob on a Tractor Forum WHO CAN SAY WHO KNOWS AND WHO CAN PREDICT THE FUTURE NOT MEEEEEEEEEEEEEE LOL

That's one reason I wouldn't invest solely in Stocks or Bonds or Gold or Silver, but choose to diversify and consult with trained professionals, do my homework and do whats best for me and my situation NOT STRICTLY WHAT SOMEONE ELSE SAYS

Very fun and informative chat yall

Best wishes and good luck in your personal investment choices REGARDLESS if you take advice or do it all on your own WHO CAN PREDICT THE FUTURE???

John T
 
Believe they can make gold today but must begin with platinum which is more expensive. Bombard it with nuclear particles (protons?).
 
If you bought Gold in 04 at $400 and can sell it today for $1300 how'd you figure you 'lost' anything?You just could have made more if you sold it a couple years ago.The fact that it took 90 years for the US Dollar to devalue to $400 against
an ounce of Gold and now in just 10 years more its devalued $900 more to $1300 its not hard to see which way the trend is headed.
 
The rule that I live by is "buy low and sell high" and it NEVER fails. So why would anyone buy high (which is where gold is now) and believe they are going to make money? The days of giving your money to some "suit and tie guy" and believing you are going to win are long over. With a brain , common sense , some marketing savvy and some cash/capital , and craigslist/internet sites , one can make from a low of 20% interest on up to 100% on their money pretty easy. The days of leaving it all up to a stranger and reaping the rewards without any responsability are gone.
 
At the end of 1997 Gold was $300/oz now its $1300
thats OVER 4 times as much as it was in 1997.Plus
Gold not going 'bankrupt' like some of the people that have issued bonds like GM,Detroit etc.
 
Yep, but guess what? All of that is being shut down in our nation, so if I"m looking to invest, and my choices are China, Canada, Mexico and a ton of places versus America with Washington DC putting baseball bats across our knees and closing up our shops and resources, well common sense dictates..................

Mark
 
Lost because there's any number of people who bought it at 1900 and thought they had the tiger by the tail... then panicked and sold it. That's what I call a real, complete, total absolute stupid loss.
What amazes me is that you think they won't confiscate your gold in the time of economic collapse. It's been done before. It will be done again if the situation merits.
Gold has proven itself useless time and time and time again as a currency. That's why we have a fiat currency. The only thing that you can be sure of is that if one version does fail, another will be created... and it won't be based on gold either.

Rod
 
Agree. In an economic collapse silver, specifically silver coins, would have a more practical application as currency than would gold. Like gold, silver has for centuries been considered a thing of value.
 
I bought 1oz Krugerands at duty free in Joberg airport, South Africa in 1980 and 1981 for 400-450 an ounce after it had been much higher. It took years before it was back to that level. If I would have invested more in CD's or even the darned stock market at the time, I would be ahead. Still have the gold, but have written it off as a so-so investment. Now days if I invest in precious metals, it's copper, brass and lead.
 
Ted, if you think anything I've stated is incorrect, don't beat around the bush. I've tried to stick to easily verifiable facts: London gold prices, the S&P 500 and the Consumer Price Index. Without any specifics, your complaint sounds like sour grapes. I'm sorry if reality doesn't want to cooperate and line up with your preconceived notions.

I have no problems if people want to own gold. It doesn't make much sense to me to be buying the stuff while its price is plummeting any more than it made sense to hold a lot of Deutschmarks in 1923, but that's your business. What I DO have a problem with is when folks here recommend gold as an investment, which is exactly what happened for the Nth time a few days ago.

Sure, there have been plenty of cases of hyperinflation in the past century, but just because it has happened in countries such as Argentina (which issued new currency) and Ecuador (which switched to the US dollar) doesn't mean it will happen in the US anytime soon. In fact, the dollar has proven to be pretty resilient. In the past five years it has weathered the biggest economic crisis since the Great Depression, record-high budget deficits and two attempts in Congress to default on US debt obligations. Sure, another crisis might come along and strike a fatal blow to the greenback, but I can't imagine what that might be.
 
Well folks that bought $7 corn didn't do too well either.Gold is for the long haul not quick in and out for me.Of course 'smart' folks like yourself will hang onto their paper and complain about prices rising while really their paper is steady loosing value.
 
Apparently you can't read very well.....I never mentioned "paper".

You're being played like a bass fiddle by the gold dealers of the day. Economy crashes, there'll be no one in a position to BUY your gold, making it virtually worthless.
 
(quoted from post at 08:31:08 05/04/14) Name one other thing that has been consistently considered something of value since the beginning of recored human history like Gold has?
Click to expand...

Spices, bronze, iron, steel, livestock, salt, food, land, tools. The list is long. Golds value exists because it's relatively rare, not because it has any actual value. At one time tulips out valued gold 100's of times. Black pepper was worth it's weight in gold for many centuries. IOW, gold only has worth because people believe it has worth. We assign it value because we agree it has value. Same for diamonds, a relatively common rock that is produced in refined form in limited numbers to keep the price high. What worth does a diamond have in reality? Sometimes you needs it to cut certain materials. Beyond that it's just a rock. Paper currency is only worth something because we assign it a value. It has NO real value, it's just an easy method of representing value in a transferable form.

Food, water, shelter, tools, fuel, labor...they have real value. Anything else is all in the eye of the beholder.
 
Lots of us don't hang on to paper. We just don't spend it on gold.... Personally I'm not the least bit worried about paper losing value. We've been through the how and why of that many times before.
As far as corn goes... I suspect that not too much was lost on that. At the end of the day they had a real usable commodity that they could sell, and probably did so quite quickly when it softened slightly... and if they lost on their speculation they deserved what they got.

Rod
 
I have read alot of posts about gold on here the last few months. Most of what I have read has been wether gold was a good investment. Alot of negative and positive reply's to all these posts. IMO, gold is a commodity, not an inflation hedge. It fluxuates up and down on the market like any other commodity. Common sense should tell you that. As far as investment, what it did yesterday or 30 years ago don't meen diddly. What it will do tomarow or 3 years from now does. Nobody knows that. But what we do know is gold is on a slightly downward trend but price is still higher than it should be. We know that to make money on investment, you have to buy low and sell high. Common sense applies again. The facts should tell you its not a good time to invest. Now the collaps of the dollar is a completely seperate issue. The commodity value of gold is based on a world wide market as about all other commodity's are. If the dollar collapses, the gold is still only worth what it is on the world wide market. The market can still go down. Is it possible to invest in gold and still loose money if the dollar collapses?? Yes it is, if the market is also on a downward trend. The only situation this creates is the money you have invested in gold will not be affected by the collaps of the dollar, but will still be affected by the trend of the market. If anyone don't believe any of this, consult a professional (not a salesman) and they will tell you the same thing. My 2 cents.
 
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