Gold within a hair of new record high in $s (Metal of Kings)

It doesn't apply at all. Gold never had and will never have a constant purchasing power. No form of currency ever has a constant purchasing power in a free market where prices are permitted to fluctuate with supply and demand changes. You'll read this sort of garbage all of the time among gold authors with little or no economic training, and there are many of them. It's best to ignore them.

 

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Better said than I did. Thank you.

I also agree over a long time frame gold, like most commodities, will retain purchasing power, but that "long time frame" may not work for some. It does no good to know that in 20 more years your gold will go back up if you need to sell it today to eat. People right now who own gold are in a good position, those same people in 2000 were losing their shirts if they did not buy it more than 20 years before.

 

Not necessarily.
Heck, someone could have bought at the 1999 low of $254 and sold at the 2000 high of $312.70 and made a fairly decent return of 16-20%.

http://www.taxfreegold.co.uk/goldpricechart.html

 

In a very tiny, specific instance. Ok, 99% of all purchases made between 1980 and 1999.

 

Why are you stuck on 1999/2000? I seriously doubt there were too many people who actually bought at $800 in 1980 and waited until 2000 to sell it at a low. And if someone had bought gold at the 1980 low of $474, they could have sold it at a profit long before 2000, like at the high of nearly $600 in 1981. And speaking of 1981, I nearly doubled my money on a $20 St. Gaudens that I had bought in 1978 for $320.

There are always highs and lows in each year from 1980 to 2000 where one could have conceivably made a profit dealing in gold in each year, and there are only 2 year sets between 1980 and 2000 where someone would have theoretically lost money buying at the low of one year and selling it at the high of the next year.

http://www.taxfreegold.co.uk/goldpricechart.html

 

I am not stuck on anything. I am pointing out a period in which the vast majority would have been underwater if they had bought then and tried to sell a few years later. You are the one using theoretical buying at year lows and selling at year highs to make your case. Of course if someone has perfect market timing in almost any real life market scenario you can make money. OVERALL, using average pricing that most people would have experienced, they would have lost money during this 20 year period. Its a generality supported by the generally declining market.

My uncle thought he knew something, and listened to all of the "gold experts" in the mid 80's how it HAS to go back up. His health failed in the late 90's and sold for dramatic losses. I am arguing his was the norm of this period, not the exception. He needed cash, and did not have a year or two to wait for a market correction.

Another thing not talked about here, but newcomers need to know, is PM's have large buy/sell spreads, meaning if you buy and the market goes up, you probably still have not made money. This spread on physical PM is MUCH larger than for stocks or bonds, so it is also a drag on performance.

 

And then again, if someone had bought gold anytime in 2000, they would have been far ahead of say, a DOW index fund bought at the same time, if they sold now.

I guess what you are saying is not to listen to the "experts", and on that I will agree. I do my own research on gold, and also rely on my gut feeling that has been developing since 1968. As a result, with the exception of some learning sessions where I took some minor losses when I was a kid, I have done better with gold (and silver) than with nearly any other investment. The only thing that comes close is the 7.5-8% long-term CDs that I got in the early '90s that helped to provide a little discretionary income in those days. And yes, those CDs did better than my gold during that time. But there is nothing comparable to those CDs now.

 

Meanwhile silver is up 8% on the week, and gold is up 3%. This is where the volatility factor plays into silver's favor. Gold tells silver where to go, and then silver dashes ahead.

 

But there has been no beneficial changes in the industrial supply/demand numbers for this increase. The USD has gone up since the fall of silver and gold in May. The euro was lower earlier, and didn't cause much change. PMs were headed up well before Bernake speech today, so why is it doing well? Probably the "fear" factor, but even that is not clear, as the increase in the USD due to European trouble, seems to indicate that to much of the world the USD is a "safer harbor" than their local currency. The USD can be exchanged in milliseconds, but physical PM can not. People seem to always be a little late when it comes to using PM as a safety net. If one believed in PM safety, they should have bought when gold dropped below 1500 ( a large resistance line). Few did. To buy now could be a big mistake if large sums are involved. A few oz. of gold purchased now will make little difference in the next decade. I personally would like to see gold hit 1750 by the end of the year, but one must reevaluate their position every day or week and make a decision. Many won't.IMO.

Jim

 

The US dollar might be up against the Euro, but it is down against other currencies, including near its all-time low against the Japanese yen. Even though Japan has suffered not one but THREE major disasters this year that have resulted in hundreds of billions of dollars in damages and disruptions to its industrial production, among other problems, the yen is STILL stronger than the dollar than it was before the disasters! If the dollar has shown such weak performance against the currency of a nation that has been economically devastated by such a megadisaster, what does that tell you about the actual strength of the dollar?

 

There is no logic in comparing gold to the price of bread as you haven't presented any rationale for how the two prices are related. If it gives you comfort in your investment decisions, then so be it, there are others who look at chicken entrails. And you even salted the results by buying $5.20 loaves of bread. Please. LOL.

I am the first to say that short term buying of Gold (speculation) is folly vs long term holding of Gold (investing). Nothing different has ever been suggested.

 

There is no correlation. You are making the mistake of drawing a conclusion based on 1 weeks worth of data. This is the same as cherry picking dates as I said above.

 

Of course. However in the context of this topic, gold investing, it has not been. Prior to 1971, there was no such thing as investing in gold because the guverment held the price of gold at a flat $32/oz. You would have been better off putting your money in a savings account at any bank. At the time, banks were highly regulated and interest was set at 5.5%. (or there abouts)

 

Actually, I'm not buying $5.20 loaves of bread. That's what the unnamed "PM dealer" on the unnamed radio program was apparently saying.

I've looked at various other consumer items, as well as the CPI. They all show the same pattern -- the value of bread and milk and oil and lumber all fluctuate with respect to one another, but gold and silver fluctuate more wildly.

No matter what term you invest for, there will always come a time when that term grows short -- you'll always reach a point at which you need to sell. Unless that "point" is a twenty-year window, you run the risk that it will fall during a long valley in prices.

 

Then you first point is irrelevant. You can always cite anyone saying anything about anything. This is a discussion here and now between bullion investors. Since unknown PM dealer isn't here, I can't comment on it. The second point is assumed. I'm not sure why you bring it up.

If you think loaves of bread are somehow relevant to gold investing, and I've still not seen a logical argument made for that beyond an association fallacy, I suppose that is your choice. I won't try to convince you otherwise. However, I've presented why I think that gold will continue to rise, and if you wish to actually address that, I will be glad to discuss it.

 

Oh, sure you could invest in gold before 1971. I don't know where you get this as a start-off year, but the official government price of $35/ounce was what you would have gotten for selling bullion to Uncle Sam up until it was raised to $38 in 1972. However, gold coins were being traded for premiums that were above their gold content, and that rise had started in the late '60s-- or at least, that is when I became aware of it. For example, the price of a common sovereign that was listed for $12.50 in the 1969 edition of Yeoman's Current Coins of the World was selling for $18-20 by August of 1969.

By the late 1960s, people who had gold coins were going by the world market price, and not Uncle Sam's bullion price. Even then, premiums for common foreign bullion coins were rising well above world market prices, perhaps in anticipation of eventual US market liberalization.

 

Bread is a simple, easy to understand stand in for CPI. THe point being made is relative to each other most commodities do not change relationships typically. This is due to them not going up at all, its the dollar going down. It has done this for a long time. Anyone pointing to ANY commodity and predicting it will go up for a long time is having a "Der" moment, of course it will. ALL COMMODITIES will go up over time, that is simply a truism assuming inflation based economy which we have.

I have said over and over gold will be $5000 an ounce someday. Now, when and if that makes it go up more than alternative investments is the answers I do not know.

 

When I'm participating in a discussion, I often respond to points that previous participants have made. If this offends you, please feel free not to respond to my posts in that discussion, or to start a new thread.

As for the point that "gold will continue to rise", I'm trying to tease out what that actually means. "Gold will continue to rise against the dollar" seems like a pretty safe bet, because it seems like a pretty safe bet that the dollar's purchasing power will continue to shrink. But it seems like you keep flip-flopping between "gold will go up against the dollar" and "gold will go up in value", which (I assumed) means its general purchasing power would increase.

The poster to whom I originally responded was trying to say that gold maintains its purchasing power over time, and was trying to support that by quoting the "unknown PM dealer". I posted hard numbers to show that the PM dealer's example was laughably wrong. Bread is a representative consumer good, and therefore a perfectly reasonable example to illustrate "purchasing power". If you disagree, you should show that the "value" of bread isn't representative of goods in general, and suggest your own representative goods.

If you want to talk about gold's future relative to the dollar, or the dollar's future in isolation, that's fine. If you want to make the point that "gold will continue to rise", please state explicitly what it's rising against.

 

No offense taken. I'm not posting based on emotions. I simply said that hearsay is irrelevant. Maybe you didn't notice that I started this topic.

You didn't post any numbers. You posted a link to someone else's webpage. Since he isn't here to explain it, and you can't explain it beyond the mythical $6 loaf of bread, I consider it irrelevant to what gold is going to do in the future. Any one should be able to figure out that without considering production efficiencies of food creation over the same period, then it's folly to even suggest a comparison. The fundamentals behind bread production and those of gold pricing are completely different.

Finally. I agree that consumers buy bread as they consume it for life. However consumers don't buy gold. Gold can't be consumed to sustain life. Investors buy gold. It would be a fallacy to make the correlation that what drives an investor is what drives a consumer. (Yes, they can be the same person but that isn't relevant) Hope you get it now.

 

Why do investors buy anything? Lets limit the discussion to just "things" and not securities. Why do they buy things? They do it to sell to someone at a later date for higher, right? At some point someone has to be the consumer. Gold is consumed just as much as bread is. People buy it for jewelry, electronics, for weddings, for pleasure. Gold is bought for "life" just as much as bread, oil, copper, and corn it. Difference is that gold retains most of its value after "consumption"

So, as an investor of any of these, you are investing today hoping to sell for more tomorrow to someone who wished to "consume" this item. I do not see much of a difference between gold and bread like jeffb states. His thought is all commodities move similarly usually since it is not an increased demand for them, its simply a decrease in the nominal value of cash. This is 100% proven historically true.

I perform the same act of "investing" buy buying up 10 cans of coffee before an expected price hike as you buying gold. There is a difference in expected holding time and sale price, but the act is the same. In fact, any purchase of a commodity is really speculation more than investment, since an ounce of gold cannot magically turn into 2 ounces next year.

Chris