Interesting article: The stability of precious metals Eternally attractive to mankind, precious metals have found their principal use as a store of value. Because of their rarity and durability, for thousands of years precious metals have been accepted almost universally as money. Because the value of gold (the most recognized of all precious metals)—what it can buy in real goods and services—has remained remarkably stable for the past 500 years, it is widely sought after throughout the world for both its investment qualities and its industrial properties. The ownership of precious metals, particularly gold, has become controversial over the past 75 years. What has probably created the controversy in precious metals is the belief that the economy is moving toward collapse and gold, specifically, and other precious metals, to an extent, will be the salvation of all wealth. There could be some truth in that belief if the economy does collapse under the weight of its excessive debt burden, because it is possible that precious metals could appreciate greatly in value during that time. The fallacy of that theory is to believe that gold or any other precious metal will become the principal means of transacting business. With the highly volatile situation in today's stock market, many investors are fleeing paper assets, moving out of the high tech stocks, and protecting their savings by adding precious metals, especially gold, to their portfolios. Through hard times and times of plenty, gold endures. Although market cycles are permanent facts of life, gold has maintained its long-term value. As an investment, gold typically is viewed as a financial asset that will maintain its value during times of political, social, or economic distress. This is why gold is often purchased as a hedge against inflation and currency fluctuations. As such, gold is commonly viewed as providing individual and institutional investors alike with a portfolio safety net against sharp downward spikes in complementary assets, such as stocks and bonds. In the past, fixed assets, such as precious metals, have held their value relative to other assets. Typically, because precious metals represent the more stable asset in times of economic difficulty, precious metals will usually do well in a volatile economy, particularly in a hyperinflationary period, simply because they are still recognized as standards of value by most investors worldwide. Investing in precious metals Solomon, in his wisdom, offers an excellent investment strategy in Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.” Solomon found the only path to peace of mind in investment planning was to diversify and surrender the outcome to God. Based on this, it would be wise for investors to make informed choices that are spread out to cover the various categories of the investment spectrum. Many investors today are hoarding precious metals, especially gold, as economic crisis insurance. Caution and preparation are wise, but no one can prepare for every possible calamity. Because the buying and selling of precious metals is oriented more toward a long-term investment strategy, any long-term financial planning could conceivably include the purchase of some precious metals. Generally though, the only people who are able to make money with precious metals are the brokers who live off of gullible amateur speculators. Nevertheless, if an investor is interested in investing in precious metals, he or she should limit his or her investment to no more than 5 to 15 percent of the total investment portfolio. Conclusion Precious metals are long-term stores of value, highly-liquid, and internationally recognized assets of last resort. They can diversify and stabilize a person's portfolio, they can protect it against market fluctuations, and they are easy to buy and sell, any time, anywhere in the world. However, precious metals are very volatile, speculative, and high-risk investments. This investment area is for the investor with a strong heart and cash only. Unless an investor can afford to lose what he or she has invested, this is probably not an area in which a person would want to risk a lot of money, especially savings or retirement funds. Although a portion of an investor's investment portfolio could include precious metals, these will probably not protect an investor from financial misfortune in case of an economic crisis.
I think right now Gold is peaking and sometime in the next few years there's going to be a major down turn in the price. History says that when gold prices rise as fast as they have been the last few years, that at some point they will come crashing down to earth. Historically this is in the 40-50% drop range. However, the prices almost always will trend back up and above the pre-crash price. Normally it takes the better part of a decade to recover, sometimes two. So, on a longterm investment basis gold will almost always give you a 3-5% return, if you cash out during a jump in price you could look at a 50% or more return. OTOH, if you need to cash out for retirement and the market tanks before you get the chance you could easily lose half of your investment. So, IMO, any investing in gold should be as part of a longterm strategy, to stabilize a longterm portfolio and the invester should be keep close tabs on when they might need to liquidate and the gold market.
Great post JCB. I'd also add that gold is the first metal mentioned in the good book, in chapter 2 of Genesis. I've chosen to invest the greater majority of my wealth into precious metals, specifically silver, but I think gold is a great play as well. In a worst case scenario which I hope does not occur, all paper and electronic assets could go to zero, and land will not be as ideal since you can't be mobile with it. That means you could be taking up to an 85% haircut on your assets if you only hold 15% metal. It could come back and bite you just as easily, but metals can never go to zero. Regarding the previous post, I do not believe we have yet seen this bull market to really get moving. If we are to look the gold bull market of 79-80 there was a blowoff at 440 (first link) which was just a bumb in the road to 900 (second link). Today's gold and silver markets look a lot like that first chart, but since this bull market has a lot more longetivity than back then, and because we are possibly looking at the first ever unprecedented global currency crisis, I believe it will surpass the magnitude of moves we saw in 1980. All in my opinion. 1979 gold chart: http://www.bullnotbull.com/archive/gold1979.html 1980 gold chart: http://www.bullnotbull.com/archive/gold1980.html
Personally, I think we're going to see a big drop eventually. It will probably happen when/if the economy booms again. A lot of the increase in gold prices right now is due to the price and people hoarding it because they think it's a good thing to have in a financial meltdown. The problem is, if things go so bad currency is useless, gold and silver will not be the primarly bartering item. People will value food and supplies more than gold, gas will probably be more valueable that gold. Maybe the price continue to rise the next few years but at some point I believe that the price will dip hard.
mcrow24, I think we are mostly on the same page. I just don't think the price will drop like you say until there is a new currency. Gold and silver wouldn't be as desirable as resources during the transition, but after things settle down that's when they would provide wealth preservation.
That article is nonsense. There is absolutely no technical merit to it at all and the article completely ignores the fact the biggest holders of gold are the very central banks that print the confetti the rest of us are forced to use.
Not often I agree with you Fatima, but I do on this. I know of no country with their own currency that wants a gold or silver standard for their currency. They all ( US, Eurounion,China,Russia, India, Saudi Arabia), like to be able to print the paper. If someone does, please give reference.
I tend to think that both China and USA believe and know that fiat currency is worthless. Otherwise China wouldn't have loaded up on a stash of gold that would put Fort Knox to shame.
This can be dicey. Is a country its people or its government? Most people don't want to be robbed by inflation, but most governments want to siphon wealth from them. I don't think anyone in a position of power wants to stop skimming off the top, but at some point they may actually need to. The first nation to do it will have the strongest currency in the world, but at the cost of a smaller wallet which is really an illusion since a stronger currency would buy more anyway.
