phillips49

Where Are Precious Metals Heading?

Bearfund:

If cash is a lousy investment and gold = cash, then gold must be lousy investment. Because gold is a commodity it is an unreliable proxy for cash. It is subject to supply and demand and is only worth what someone is willing to pay for it at a particular time. It is highly volatile over short periods of time and unrelaible over long periods of time. Yes, the example posed is extreme, but it is also real. By 1984 gold had declined to $331/oz. In December, 2002, gold was still only $346/oz. Cash invested at 4% interest would have yielded $668 in that time frame. Bread doubled in price in that same time frame. If bread could have been preserved, bread would have been a better investment than gold for those 18 years. A buyer of gold in 1984 would not have had parity purchasing power until 2007. 23 years is a long time to wait to get even. Neither the dollar, nor gold has any particular value except what it can be exchanged for. Money can be made in gold by some, by just plain luck in timing and by some pros with a good timing system and instant information. For the average person cash is a safer, more reliable position in a bear market. Gold today is 4.4% lower than it was on July the 15th. Cash is still the same value.

Where Are Precious Metals Heading?

Ownership of gold as an inflation hedge has everthing to do with timing, hype and fear and little to do with reality. Let me explain. My dad bought into the the sky is falling, everything is failing in 1979. He bought gold at $750 an ounce. ( I inherted it ) To have the same buying power today, gold would have to be 312% more than what he paid for it, assuming 4% compounded inflation a year. (1.04) to the 30th power, or $2340 per ounce. It hasn't even come close. In the same time frame the Dow Jones industial average has risen from 830 to 11000 or 13 times. The same investment in the Dow would be worth $9,750. The Dow may be ugly at the moment, and it has certainly been ugly in the past, but the history of sound investing is on it's side.