Should Gold Be in Your Investment Portfolio? 9 comments
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I have talked a lot about gold here. The reason is I am a believer that gold, not physical gold though, should have a place in the portfolio, not exactly for hedging against information but for diversification. Take a look at the performance of the stock market and gold since 2007, for instance. After reaching the all-time high in October 2007, the Dow has lost nearly half of its value, while during the same gold has actually gained about 10%. Of course, if you only have something like 5% of your investment in gold (invested in GLD for example), the gain won’t do much good to your portfolio as whole if the equity portion of your investment has tumbled 40 - 50%, but still that’s the little help we can always use.
Thursday, spot gold again surged more than 7% after the Fed announced yesterday that it plans to buy up to $300 billion long-term Treasuries in a bid to halt the economy from sliding into even deeper recession. The move immediately stirs up inflation concerns among investors, who then traded gold from down $30 an ounce yesterday to up nearly $70 today. That’s a dramatic turnaround. The
TIME Wednesday published an interesting article on gold, discussing whether gold is the safest investment. The most amazing statement I read from the article is this:
At such high prices, gold ceases to have much practical use. There is no theoretical rationale why anyone should even want to invest in it. Gold has value only because we believe it is valuable. It is a collective hallucination.
This view is probably held by many who believe that gold’s gain is nothing but speculations (if gold price going up only because of traders’ fear of inflation, then that’s speculation). But then again, as the TIME article pointed out,
Gold, then, can be considered a currency, unique in that it is not directly tied to any country’s economy. With a global recession that is bound to continue to shake up the purchasing power of all foreign currencies, gold is safer from political and economic instability than cash.
What do you think? Are you investing in gold in any form, stocks, mutual funds, ETFs, coin,s bars, or even jewlery?
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This article has 9 comments:
Time says (in the same article yet): "...Gold, then, can be considered a currency... gold is safer from political and economic instability than cash..."
Time...two magazines in one.
This is a common criticism, but it's flawed. It implies that gold is a fad that could lose value if fickle popular opinion changed. But gold's value does not rest ultimately on popular opinion or habit. It is based on the faith of a FEW who will always trade goods and services for it. There needn't be many such persons. Just one pawn-broker or coin shop or regular weekend flea market trader per town will suffice to provide the backing that gold needs. This trade-ability makes persons in the general populace willing to take gold in trade as well.
This is how it's worked out in Argentina and Zimbabwe, to cite two recent test-cases. The "collective hallucination" hasn't failed under stress, but strengthened.
Cost of Myrhh $2.25/ounce today vs $250/ounce in Jesus time
Cost of Frankicense $1.50/ounce today vs $35/ounce in Jesus time
Cost of Gold $940/ounce today vs $920 in Jesus's time (based on military pay differences).
Now it does worry me that one day, I may find the world prefers Myrhh and for some reason does not value gold; though given gold has lasted since at least Egyptian time I'm not willing to bet against it. I also like Faber's view that we each take on being our own "responsible" central bank and have our own gold "reserves". I'm currently have a 1:15 (or have 15% gold reserves).
Anyone want to pool reserves and start a bank...lol.
Cost of Myrhh $2.25/ounce today vs $250/ounce in Jesus time
Cost of Frankicense $1.50/ounce today vs $35/ounce in Jesus time
Cost of Gold $940/ounce today vs $920 in Jesus's time (based on military pay differences).
Now it does worry me that one day, I may find the world prefers Myrhh and for some reason does not value gold; though given gold has lasted since at least Egyptian time I'm not willing to bet against it. I also like Faber's view that we each take on being our own "responsible" central bank and have our own gold "reserves". I'm currently have a 1:15 (or have 15% gold reserves).
Anyone want to pool reserves and start a bank...lol.
On the same note I don't have faith in Gold ETFs. I suppose that they are fine for short term plays and day trades or whatnot but I keep mine in a safe deposit box. Too may recent frauds in the world of finance for me to trust anyone telling me they have the gold in a vault. I'd just rather OWN it myself.
As I recall, we used to fire up the bong (or whatever) back in the 1960's and this was the sort of thing we would conclude..."Reality is what we believe it is ", peace and love, etc. And a nice touch by the author, working in the word "hallucination".