PM's The new get rich scheme

I was not playing a game with the dates, that is why I chose the entire population of data currently in existence. That is the only non-arbitrary way I know to compare.

Comparison between dividends and basis trading is not the same. You can do the same with loaning the stocks. Dividends are real cash flow from owning the equity, not a market transaction. Dividends would be like the gold increased by a gram and you can cut it off and sell it, or let it just continue to multiply.

I 100% agree no investment is best. I just disagreed with the presentation and misleading conclusion of the site listed. Sorry, I am just sensitive to financial half truths, of which there are so, so many.

 

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I think it's pretty arbitrary since it was not legal to invest in gold bullion for most of the period. The investment performance during a period of time when the asset doesn't trade isn't relevant.

 

True, except that the large gain gold made in the 70's was effectively the cumulative gains that should have been made during the government gold ban. That is why a person would have made a huge profit buying it the day it became legal. The comparions may not be perfect, but since gold was legal at the beginning and the end I think its a good proxy. I would wager that many other commodities would show the same comparison. I know there are many people who still say PM are money, but I view it as a commodity that is very easy to physically hold. I have about 10% in PM, and think its a great idea if you buy it at a good price. I am just too cheap to buy right now, I don't see the relative value versus REIT's, some equities, and some value housing. For me to buy, gold needs a correction to about $800 or less, and silver $11-12 or less. At those prices I may add to holdings.

 

The comparison is only valid after gold transformed from currency to commodity. Money isn't an investment and can't be expected to earn an investment rate of return. This didn't happen until after Nixon closed the gold window. There was no huge profit the day it became legal to buy gold. In fact, the price fell for awhile. But we can agree to disagree about the return. In the meantime, the DJIA will have to rise to about 50,000 to get even with holding gold over the past decade. And that is the only point I'm trying to make. Sometimes gold outperforms. Sometimes stocks or something else outperforms. I don't expect to be a buyer of much more gold or silver. I expect to be a seller sometime in the next 5 years. Hope for the best.

 

As I said, the analysis didn't look at any of the numbers. All it did was look at the slope. Increasing slope means stocks did better, decreasing slope means gold did better. If I only had one data point at one place in time, I couldn't tell which was doing better. My analysis didn't care about starting points or ending points. All the analysis did was take over a period of time (choose any you wish) stocks did better and other periods of time gold did better. The time is what I'm looking at, not the ultimate end number nor the beginning number, but how the two related to each other over time.

The ratio of the two numbers could be away out of whack depending on the starting points. But if the ratio was 100 stock to 1 gold and then became 50 stocks to 1 gold, then stocks gained in value, as it only takes 50 now to buy one gold. If it were 100 stocks to 1 gold and became 200 stocks to 1 gold, stocks are worth less as it now takes 200 stocks to buy one gold. Of course, both gold and stocks could both of been falling in value during this time period, but maybe gold didn't fall as far as stock did, which would still make gold the better performer, even though both are losing value.

 

" I don't disagree that gold may have done better than stocks equal number of years, but that is meaningless compared to the level of outperformance."

"I don't think the point is to "prove" gold is better, but only that there are time periods when one investment outperforms the other. No investment is always best"

" Of course, both gold and stocks could both of been falling in value during this time period, but maybe gold didn't fall as far as stock did, which would still make gold the better performer, even though both are losing value."

I think we are coming to a consensus.

 

Update.....

http://money.cnn.com/2010/08/20/markets/thebuzz/index.htm

 

It's all risk vs reward. Personally, the housing market has fallen so much where I live, that I have put my investments in that. How much can prices fall ? Will demand ever return ? What is the potential gain ? I really don't envision gold advancing to say $2500 and toz in 6 years ? I don't think the factors are there. Housing could though. Not saying that it will, but it has potential.

But everyone needs a few gold and silver coins stashed. Just in case.

IMHO, anyway

 

I'm young (24) so I'm hoping be the time I'm ready to retire/die my gold and silver investments can at least help my family out / pay for my funeral . I guess I look at it as a very-long term thing.

 

You may want to set your goals a tad higher.

 

I read a great article recently about inflation adjusted housing and it had a great chart. I have seen this chart before...while I was watching my tech stocks take off. Looks alot like the silver chart you old guys watched.....now here we are with US houses with a modest pull back.

While I do not feel that we are in a inflation adjusted bubble for PM, the recent talk about "cashing in my 401k" or "just bought 20K of Silver", is scaring the carbon out of me. The reason you see charts like the one below is because of the greed/fear motivated actions that start out with the talk in this post.

I have never felt more like I should take my profits in PM, like I have in the past few weeks reading these posts.

 

I wouldn't worry too much about posts here, or anything else you read. By definition, about half of the people at all times must be bearish, with the other half being bullish [or indifferent]. That's what makes a market. If everyone felt the same way, the price would quickly go to the moon, or to the bargain basement. I think gold and silver will go a lot higher. Others feel like selling when gold >1,200 or silver is >20. Just determine your own risk tolerance and assess the fundamentals as best you can while ignoring opinions that are not backed up by fact. If you are nervous, perhaps you own too much gold or silver and should lighten up. Remember, you don't have to be all-in or entirely out of the market. Hold whatever amount you are comfortable with. Investing isn't supposed to make you sick, so don't let it.

 

Great point about over allocation.
If it was any other asset class, I would have already rebalanced.
Hard to know where to move to....I should check to see if Pets.com is back on the market yet!

 

I find it oddly amusing that you'd sell your PM investment because some lunatic is cashing in his 401K early, or some rich person (anyone who can drop 20K on PM in the blink of an eye isn't exactly poor), buying 20K worth of PMs. I can understand if PM were in some sort of bubble, but being in a bubble would require everybody and his brother to be interested in investing in that particular investment.

I remember in 2006, when the number of people foreclosing on their properties was starting to increase, videos came out with so called "experts" telling people to take out a loan and buy up all these foreclosing houses because the price of houses has been going up, up, up and if you sell it a few years from now, you're guaranteed to make a profit. Well, we all know how that ended.

Find a financial adviser. Tell them you want to allocate 30-40% of your money in PMs, see what they tell you. My guess is that you'll hear this, "you can't make any money in PMs. They don't have dividends and you have to pay to store them." If PMs were in a bubble, the adviser would be telling you 40% isn't enough. I think we are a long way off of a bubble in PMs.

Gold has gone up about 15% on average for the last 10 years.

$280
1 yr. $322
2 yrs. $370
3 yrs. $425
4 yrs. $489
5 yrs. $563
6 yrs. $647
7 yrs. $744
8 yrs. $856
9 yrs. $985
10yrs. $1132
We appear to be around here now.
11yrs. $1302
12yrs. $1498
13yrs. $1722
14yrs. $1981
15yrs. $2278
16yrs. $2620

So, in 6 years if things keep on like they are $2600 an ounce gold isn't out of the question. Of course this is assuming nothing changes and past performance is no indicator of future performance. But we are assuming nothing like massive amounts of money printing by the Fed, the lose of confidence of the U.S. fed notes as the worlds reserve currency, and the U.S. gov. figuring out how to handle burgeoning deficit in the next 3-4 years before the interest on the debt alone is 60% of our entire GDP.

 

Nice way to fit a graph beginning at a historically adjusted low market. Should I fit the market returns starting in the early spring of 2008 while we are at it? Or start a housing graph at about the same time to "prove" housing will eventually cost $0?

Sorry, pet peeve of mine. To graph any type of performance of any financial instrument the timeline is KEY. Starting stocks return in 1975 is just as bad, since they were coming off of 1973 and 1974 historically horrible returns. We have had these discussions before, and I believe the only fair way is to compare 1924 to date returns of all financial instruments, or 1900 to date. Short time frames is why markets overreact and people think the party will continue "forever". Same as the housing bubble, same as tech stocks, same as defense stocks, same as 1979 PM's, same as holland tulip bulbs. All bubbles have many people saying, "its different this time", its ALWAYS different this time..............

I am not saying PM are in a bubble, but to suggest they will continue to see gains at the same rate as they did coming off of historic lows is simply foolish in my opinion. Can they keep current prices? Sure. Will they go up 400% in ten years from current prices? I do not see how. A lot of current demand is from Asia, and I have many friends in China, India, Thailand, etc who currently cannot afford gold anymore. The demand for gold is not inelastic, much of the current demand is extremely elastic, as gold is not NEEDED by human beings, it is mostly a luxury item or a perceived store of value. Many of them, including professional gold dealers, are on the sideline anxiously looking for any type of correction. In Asia, most gold is extremely sellable. Most of their gold investment is 24 carat jewelry which can and is sold any time money is needed at spot price. My gold dealer friends have even arranged extra loan limits and expedited wholesaling contacts in case this happens.

You say a financial advisor would not advocate 40% in PM. Well, hate to tell you, but many such advisors in Asia are currently advocating 100% gold and have been for a few years. US demand is not a large contributor to overall demand, so for you to make the case its not oversold in the US so therefor cannot be oversold it a little narrow sighted.

Sorry, end of rant, just had to get that off my chest.

 

Great advice. Education is key to investing, with it you are more comfortable with the risk. However, there is a "can I sleep" factor. If you are nervous, then maybe its not for you. I will tell you, though, that money is made when you are a little uncomfortable. If you are "sure" of an investment, that is when I get nervous.

 

I agree. Investing is all about using as many facts as you can accumulate to estimate the probability of gain/loss, and acting accordingly. Nothing is a sure thing.