Avi Morris'  Instablog

Avi Morris
Send Message
Avi Morris became interested in stocks while in high school when he started an investment club. It made him a few bucks and his interest in stocks continued. Over the years, Avi earned a portfolio between savings
My blog:
Very Smart Investing
  • Gold Glitters at Record Levels 0 comments
    Oct 11, 2010 10:43 AM | about stocks: GLD

    Gold has been a store of wealth since the beginning of history.  Today that is recognized in Asia and Latin America (where money is flowing) but to a lesser degree in the US.

    The price of gold has had an impressive rise over the last 35 years (after price supports were lifted), growing at a compounded annual growth rate of 6%.  But it's growth has been uneven as with all commodities.  The spike up in the early 1980s is exceptional, relating to a terrible recession along with high unemployment and high inflation rates.  After falling to the 300s it has risen to the 1350s today, shown below.

    Gold prices:


    In recent years the transfer of wealth geographically has fueled increasing demand for gold.  Asia, in particular, has a majority of the world's population with big population countries such as China and India.  Their wealthy investors, along with governments, invest in gold because it is viewed as a store of wealth, safe haven investment and for capital appreciation.  This transfer of wealth is an important factor for the rise in gold during this decade.

    There are many ways to invest in gold besides buying commodity futures.  One simple way is to buy GLD, an ETF that tracks the price of gold.  There is no hassle associated with margin requirements or expiring monthly contracts.  The leading and oldest fund tracking gold is GLD.  Its growth in recent years has been outstanding especially through the financial crisis and the resulting recession.  Even though it does not pay dividends, few stocks can match this performance and even fewer are at record levels.


    Dec 30, 2005__$51
    Dec 29, 2006___63
    Dec 31, 2007___82
    Dec 31, 2008___86
    Dec 31, 2009__107
    Oct 8, 2010 ___131

    Another way to participate in rising gold prices is to purchase stock in major companies that mine and process gold.  While not replicating gold prices directly, these companies will prosper with rising gold prices.

    I first heard about gold as investment many years ago, but didn't take it seriously.  At that time, it was based on investing 5-10% of a portfolio in gold primarily as a hedge.  That advice remains valid today, although aggressive gold bulls might raise the percentage after its price appreciation.  Growth of over 4 times in the last decade to new record levels is impressive when popular stock averages have not been profitable.  Dow is up a meager 3% and the S&P 500 is lower.

    Because gold is a commodity there will be high volatility over the short term.  10% price swings need to be tolerated because they are common.  But long term investors will ride out these swings with the overriding thought that gold's value is growing (as with growth stocks).  Replicating 4 times growth in the last 10 years would take gold to $5400, difficult for most to fathom.  But annual increases of 5-10% is a more realistic expectation.  In addition, gold has high defensive qualities if inflation increases from massive annual government deficits.

    Disclosure: Disclosure: no position

    Stocks: GLD
Back To Avi Morris' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


More »

Latest Comments

Most Commented
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.