phillips49

Has Gold Fallen in a Secular Bear Trend?

Let us not forget that gold traded pretty flat for the 22 year period from 1982 to 2004, regardless of inflation, economies and currency exchange rates. The creation of gold ETF's in late 2004 really created an artifical market for gold where everyman could participate without taking physical possession. Click I'm, click I'm out. This in itself drove gold prices up by creating new demand. Check the charts yourself. Soooooo, if everyman decides to head for the hills and stash his cash, gold will collaspe as the ETF's sell off their holdings. Investors have been bailing out of all asset classes due lack of confidence and fear. Since everything is only worth what someone else will pay for it, we really depend on the guy next to us to hold or buy to preserve our own investment. If he gets scared and pulls out, then the value of what we hold falls until we get scared and pull the plug as well. The last one out the door is left holding the bag.

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.