QE3 Announced

Over a very long period of time, gold will protect your wealth. So will common stocks [and real estate], and probably do a better job because the return from business enterprise will, on average, outperform passive holdings. But gold isn't always a good holding. It rises and falls in price and the unwillingness to do at least a little bit of timing breaks the compounding that is the best chance for most people to protect their wealth. Those who held gold from 1980 to 2000 missed one of the best periods for stock investing in history. The opportunity cost is tremendous.

 

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You recited the anti-gold blind spot. I never said anything about social breakdown and paper money going to zero. This never happens during a fiat collapse but it's often stated by those fully vested in that system. What will happen is the economy will continue on using a different form of currency.

It's the "conversion" that will kill people's wealth. It can range from $0/new currency to something less new currency/new currency. I either case gold will protect you from this debacle since gold will always have the same real worth.

 

In the event you describe I would rather hold large cap common stocks [or real estate]. If the system stays intact, so will the stock market since that is "the system." Gold bullion would be too much of a target for confiscation in a currency emergency. Numismatic gold would probably fare better. Personally, I don't think any of this is likely. Gold happens to be a good asset class to hold now, but it will not always be so.

 

Considering past performance I would agree that what you have described here is likely. However, considering current factors I do not personally believe stocks or real estate will protect wealth long term. Stocks have the risk of being dependent upon an inherently flawed global financial system that people are increasingly losing faith in as the debt burden is far beyond repair, and the algos are more and more frequently messing up. Real estate requires upkeep funds to maintain the value for homes, but even with just land it also requires the current market mechanisms for price discovery and transaction. Plus, real estate wealth is tied to a location that you must also be prepared to defend in a worst case scenario. Gold and silver will function as money and preserve wealth no matter what power structures are or aren't in place, and can fit in your pocket.

 

Every bull market ends with many participants declaring "this time it's different." Under any conceivable circumstance where Exxon, Proctor & Gamble, Johnson & Johnson, etc.. are worthless, it's tough for me to make the case that gold will preserve wealth, although I can see scenarios where it would make you a target. And just as you can hold gold through the bad times, so too can you hold common stocks and real estate, so price discovery in the short run isn't that important if the worst case happens.

 

Again this isn't the question. Nobody has said anything about stock being made worthless either. The real question is it's worth expressed in the new currency vs the old. Gold is the constant, the rest isn't.

The other thing to consider is the worth of any stock, is only what the next person is willing to pay for it. it should not go without notice that people will dump stock quickly in times of economic upheaval.

 

The same is true of gold.

 

The same thing happened to PM about a year ago....Oh wait, no that was manipulation by the banksters J/K.

 

If gold was the constant [which it isn't], then we would have expected to see massive swings from inflation to deflation that correspond to the changes in the gold price in dollars. No such thing happened. Gold is a commodity. This doesn't make it bad, or good, but it does subject the price to speculative swings.

The dumping of stocks in times of economic upheaval has been a source of good profits for me over the years. Anyone who can't stand market fluctuations should not invest in stocks. But the swings in stock prices routinely exceed the swings in the underlying value of the companies, so significant drops in price are a buying opportunity, and gold investors should understand this intuitively.

 

I disagree. How many central banks have stocks on their balance sheets?

 

Why? I disagree that gold is a commodity and we have been through this before on this forum. Gold is not a simple commodity.

 

That's an issue where the true believers and regular investors will never come to an agreement. I like gold and I'm invested in it. In 2004, I moved heavily into PMs and energy stocks. They are still my two largest sector holdings [but not as large as before]. I hope I'm astute enough to recognize the end of the bull market and move most of the proceeds into the next big thing [not that this is easy to do].

 

Dear Heart, and I say this in the most loving of terms, this is a bullion investing forum and bullion investors, by far are not "regular" investors. They have already seen what happens to people who follow the common person trying to invest in the instruments of the status quo and thus have opened their minds to other possibilities.

 

Very true. I'm just a regular investor [and amateur collector] who's been through this before. In the late 90s, AOL ran investment chat rooms for subscribers [chat room 4 was a wealth of information]. I still think that was just about the peak of internet fun, and I miss it. No offense to CoinTalk. There were many tech stock true believers who explained the new tech stock mantra to the rest of us with their minds wide open to the new possibilities. For awhile they were right, and had fun debating the rest of us. But in the end, they were crushed. I'm having flashbacks, and this is probably about 1998 again so the PM bull seems to have some steam left in it. Great profits can be made by being right and sticking with a trend until it has run its course. But great losses will follow for those who don't realize the course has an end.

 

My statement has nothing to do with what central banks may or may not hold.
Gold, like stocks or any other thing, is not worth what you, I or anyone else says it is worth. It is only worth what someone will pay for it.

 

Well, in the case of stocks, the intrinsic value can be calculated. When the intrinsic value is greater than the price, it's a buy. This, in a nutshell, is value investing. In the case of gold, the intrinsic value is the cost of production. So right now gold is above intrinsic value, but it's a bull market and it looks like it will continue for awhile. But intrinsic value is like a rubber band constantly exerting pressure up and down to bring the price back into alignment with intrinsic value.

 

Then using your definition the intrinsic value for stock is the cost that it takes to print the certificate. Not much. Of course we know this isn't the case as it isn't in the case of gold either.

Gold's properties make it unique for currency. Human society absolutely requires currency in order to function at anything beyond the hunter and gatherer stage of development. The concept of currency and gold's unique ability to form it, give it an intrinsic value that can't be gauged in what it costs to dig it out of the ground. Ink on paper? Anyone can create that.

 

There is no secret to valuing a company, and from that, the fractional ownership represented by a share of stock can be determined. Interestingly, most human societies used credit instead of currency when left to themselves. The use of coin and currency is a development by kings and other dictators of various titles to maintain and grow their power. It was also used for trade between enemies who didn't trust each other. But the world has run on credit for longer than is comfortable to admit.

http://www.amazon.com/Debt-First-5-...611&sr=1-1&keywords=debt+the+first+5000+years

This runs contrary to internet economics, and is therefore painful, but it's something everyone should be aware of. I'm not saying that gold and silver don't make good forms of money. They do. But it hasn't be the standard throughout history that the goldbugs make it out to be.

 

I know how unpopular it is to go to say this time is different, but IMO every time it's different. History may repeat itself but there are always variances. Notably this time we have derivatives and high frequency trading, two factors that are absolutely paramount to market function today that have never been in existence for any other bull market. Never before until this bull market have we seen things like flash crashes, which are increasing in frequency, or have we seen 100+ year old companies go belly up because they can't deliver their metal. I am not saying that stocks won't make it through to the other side when the currency transition takes place, but the risk involved in non-physical assets is too great for me with current market dynamics.

 

QE3 is now QE Forever