Here is a fun little gold quiz I found. With all of the debate of investing in PM lately, I thought it was a pretty good quiz with some good perspective. http://www.kiplinger.com/quiz/Gold2010/index.html?qid=74
3 of 10... i don't know jack!! which is why i don't invest. guess i need to read more of the bullion thread.
My mistake - it was 9 out of 10. And yes, Goldfinger. One of the questions was what was the character Goldfinger's first name - I missed that one.
I have a little disagreement with question 4 and the "correct" answer that gold is not a reliable inflation hedge. In their explanation, they admit it is a reliable inflation hedge when inflation is high [which is really the only thing that counts], and use the period of the late 80s when inflation rates were rapidly falling to "prove" gold underperformed inflation. I think there was a little selection bias in using this particular period of time and in using such a short time period to arrive at the institutionally "correct" answer. Maybe that's why most professional investors missed the bull market. I got 6 out of 10.
I agree Cloud. I wasn't in agreement with all points either, but thought its was interesting and fun.
But what about the period from 1990 to 2002 ? Gold did a very poor job of beating inflation during that time as well. In fact it didn't even keep up with inflation during some of those years. The truth of the matter is that other than 1979 thru 1980 and 2003 until now - gold has done very poorly against inflation. That's a whole lot of years of not being a hedge against inflation as opposed to only 9 years when it was. I rather think that is the reason for the answer being what it was.
I would have phrased the question as "Gold is a hedge against hyperinflation" and answered yes. I agree generically "inflation" is not specific enough. I didn't like the wording on that one, I got it right but had to guess as to what they were asking about.
Warren Buffett has addressed that issue in his writings. He has noted that some investments provide lumpy returns and others smooth returns, and that frequently the lumpy returns are as good or better, but you have to consider a sufficiently long period of time to get the true picture. Any analysis of gold returns that doen't include the late 70s or the past decade will probably result in the wrong conclusion. That assumes that a person is completely ignoring any timing or pricing factor in their decisions.
I answered 8 out of 10. One I got wrong was gold is a good investment against disasters. I guess the picture of a radiation fallout shelter through me off. Because when radioactive fallout is happening, I doubt anyone will give a hoot about gold.
But how about other scenarios? What about 1970's style inflation? What about crashing bond and stock markets? What about a bank holiday? What about global prosperity where a billion new middle class folks decide to buy gold and gold jewelry? No investment can protect you from death or Armageddon. That isn't the purpose.
This more than anything else to me is the biggest argument for continued gold price appreciation. I married into this culture of buying gold, (had to buy 5 ounces of it for my wedding), and know how single minded many cultures are about gold and only gold being a store of wealth. Fundamentally I would say silver and other metals are stronger except for this fact. To the extent that East, SE, and South Asia become stronger economically, this will be the biggest demand for gold for the foreseeable future. Another reason I don't have a clue as to what they will do long term, just try to buy on weakness and sell on strength is all I plan on.
