Is Gold a Good Investment?

I would like to start a conversation about the logic behind investing in gold. I am in the process of transferring a good portion of my investments into gold. Now I am just a hard working Joe who wants my future retirement to be better then this current government wants it to be.

That being said, I would like to get those of you who are more conversed in the subject of investments and gold then I am into a healthy debate for me to sit back and learn from.

Don't expect much input from me other then my original plea for a debate on the subject. I will tell you what I believe and why I am interested. You can in turn tell me I am either on target or out there on Pluto. So here is my uneducated, yet serious understanding of the situation.

First off, I have watched with many of you, as our government has been giving money to whomever comes to them with hat in hand, and it promises to continue this giveaway. Then I see the trillion dollar stimulus bill being readied for the "Great One" to sign it. Also I have read that the government is prepared to buy as many bad mortgages as it can get away with. A dollar amount I have seen discussed is supposedly somewhere around 5.7 trillion dollars. Now those are some facts that I have at my fingertips, only God knows of the ones we will be blindsided with in the coming two years.

Now I do have a basic understanding of economics, and my head tells me that the government needs to print money, something I believe they even admit they are all ready doing. However, my head tells me that the government will need to print almost 7 trillion dollars just to meet their already committed expenditures.

So it is only common sense that the money already out there will be worth less, and eventually inflation will set in. Not just a little inflation but inflation that could rival the third world countries that we have regularly bailed out time and time again.

Now as I understand it, gold has always been a hedge against a weak dollar and high inflation, if I am wrong I am sure someone will correct me. However if I am right, then it would only make sense for me to take at least 30% of my worth and put it in gold. Right?

Well, I patiently await the discussion that will hopefully unfold before my eyes. I have nothing but the utmost respect for a vast majority of my fellow Freepers. I may not always agree on every subject, especially when it comes to religion, but I do enjoy the debates I have with everyone on here. Well, here I am with my hat in hand as I humbly ask you, my peers, for advice on this matter.

May we have a good respectful debate that will benefit all.

Just looking at the "Armageddon" scenario, seems to me pulling out a few gold coins to pay for bread would mark you in the worst way. You would be killed or robbed right off. Bullets and beans would always be a better choice in that situation.

I like your position on any other scenario. If "Armageddon" doesn't come, then the price of gold will fluctuate and you are lucky to catch it in a buy low, sell high position. There are many gold bugs that suffered for decades with no income on their investments during good and bad economies, while stocks paid dividends and were optionable for protection and income.

Nothing wrong with having some gold, but more than 5% seems rather foolish. If you want insurance for your investments, buy some leap puts on the DOW or SPY while you dabble in stocks. I sell calls and puts for my retirement income from a self directed IRA. If you combine the income of dividend paying stocks with covered calls against them and selling puts to re-aquire the stock when called away, it's entirely possible to make 20% per year pretty consistently. Even counting the last couple of years, I have an average of 16% return over the last 8 years.

To believe that you can fire a bullet on gold and be on target at $900 an ounce and be higher a couple of years from now is just guessing. The Republicans may be in charge a couple of years from now and they have already said they are aiming to squash the spending in the out years of the stimulus bill IF they have 2 consecutive quarters of growth in GDP. That could greatly change the complexion of the gold futures prices. Gold may not go up that much in DEflationary times and then be cut off when inflation might start. Dreams of $2000 an ounce may go quickly up in flames. I would suggest TRADING GLD or it's options for short term gain rather than taking delivery on the metal. It's more liquid that way and you don't have to store it. If he decides gold is going higher, I would buy leap GLD calls a couple of years out for a tenth of the money he plans to spend on the metal. A GLD 100 2011 call is $20 as I write this. He could make many trades or just hold on to some for a lot less money and get the same effect as having a bag of coins to worry over. In the next 2 years, if gold doesn't zoom to unheard of prices, you haven't lost all your money, and if it does zoom, you are in with leverage.

If one decides to trade gold stocks, you have better companies and worse companies. There are many options that make any company vary in value. The price of oil, electricity, revolts and civil wars, or even a dumb CEO could lose your money even with $2k an ounce gold. I invested in NEM awhile back and the stock went down even with a rising gold price. Each investment must be looked at separately. At one time Citi was the gold standard of banks. I just get nervous putting too much money in one area. If he plans to overweight in gold, it has been my experience he will lose. A balanced approach with a quick trigger finger if you are wrong will make you the most money in the long run. Many people that are buying now will hold on to gold at $1k per ounce, even to $2k per ounce, but will not sell as it approaches $600 an ounce. You can find some gold bugs bragging now that they bought gold for $350 an ounce, but for decades they wouldn't even admit they had any. I have made many thousands of trades over those years and have done ok for myself. They brag of a double over those years and I can show many doubles in less than a year. It is possible gold will be $1500-$2000 and ounce in a year, but you could win the lottery also. IMHO, if gold is $2000 an ounce in a year, the Democrats will be out of power. Gas will be $5 a gallon, food will be ridiculous, unemployment will be over 10%, and almost any other metric measured will suck. You could take the same dollars you have in gold and buy a CD drawing 20+ %. I did that back in the Carter years(19%).

The only thing that makes me think the gold bugs may be right this time is the word "trillions". We ain't never done that before. I hope we chicken out. I have to base my moves on past experience. Recessions don't last over a couple of years as a rule. We may be wrong this time. Now we are back to "Armageddon". I prefer .45 ACP, 12 ga, and .308, for that.

Nah. Historically, gold has a long track record of mediocre performance. Average rates of return since the Napoleonic era are about 2% per year. In recent years, gold has a 50-year track record of about 4.4% per year ... about the same as inflation, and slightly less than a savings account.

A growth stock mutual fund would’ve made about 12% during the same time period. Ultimately, markets are cyclical — they will bounce back. Now is a perfect buy-low opportunity in the market — an opportunity for bargains this good don’t come along too often. I certainly wouldn’t sell anything (selling low is a fool-proof way of locking in a loss) — and I might consider buying.

Gold is also not particularly useful in a failed economy. If an economy truly fails, barter is far more valuable than gold ... real estate, food and skills/knowledge are what keep value if an economy fails.

SnakeDoc

You are embarking on your investment journey in a very wise way by seeking the counsel of others before proceeding. Good for you.

Gold is in a competitive matrix with our investments and its relative attractiveness varies over time. It would be misguided to think of investing in gold as an “either/or” type of choice.

Gold’s place in the investment universe is as an alternative to National paper currencies (U.S. Dollar, Japanese Yen, etc.). For U.S. based investors investing in Gold has been, at different times, a bad investment and at different times a good investment.

Gold, unlike many other competing investments, does not earn interest while it is being held (unless you are a huge buyer who is then in a position to lend Gold for interest). In times of a soundly managed U.S. dollar Gold is an inferior investment to interest bearing alternatives. In times of poorly managed U.S. dollar such as the 1973 - 1981 period Gold outperforms most conventional investment products.

We are in a special situation now with respect to the U.S. Dollar. We are in the middle of an epic crackup of the Dollar-based montetary system that has been in place since the end of World War II. The outlook is murky but higher inflation and general turmoil seem to be a certainty. In this climate moving the percentage of one’s portfolio in gold from 5% to 35%/40% would look to provide strong capital gains over the next several years.

I am putting the rest of my portfolio into beaten down energy shares and Triple-A corporate bonds which I feel will weather the coming storm. While I like to the currency insulation provided by Gold I do not want to completely lose interest and dividend income.

OK...so let’s say you own a “precious metal”...and you have it “stored”...where...at your house? How will you protect it? How will you use it? You gonna “shop” with it”?

WHO would want you metal if they are hungry? Sick?

I don’t understand if we are talking a serious market collapse...what good is “protecting or trying to haul around” heavy objects known as metal.

It just seems to me...that “precious metals” are JUST ANOTHER SPECULATIVE play!

New houses...were a “speculative play”

Oil was a “speculative play”

HOW is a precious metal somehow NOT a “speculative play”?

I could imagine that in the time of great hunger or sickness...how a precious metal would bring relief?

Would I as a “barterer” of a product or service...why would I want a a piece of metal when instead I would prefer food or medicine.

ASK starving people in Africa...would they rather have a OZ of silver or a 50 pound bag of rice?

PERSONALLY...I would recommend that all people OWN a bow so that when we all run out of bullets...at LEAST you can go to a tree and grab a branch and whittle it into an ARROW!

I own several handguns and 2 rifles...I also OWN a cross bow.

At least as a last ditch effort I could shoot pencils!

LOL!!!!

Speculation..what difference is there between Gold, silver, copper, oil, houses, real estate, cocaine, marijuana?????

HMMMMMM

Silver has 5000 years of history as a precious metal, hand in hand with Gold. I have some in physical storage, it is also an industrial metal, here are some of properties...

Properties: The melting point of silver is 961.93°C, boiling point is 2212°C, specific gravity is 10.50 (20°C), with a valence of 1 or 2. Pure silver has a brilliant white metallic luster. Silver is slightly harder than gold. It is very ductile and malleable, exceeded in these properties by gold and palladium. Pure silver has the highest electrical and thermal conductivity of all metals. Silver possesses the lowest contact resistance of all metals. Silver is stable in pure air and water, although it tarnishes upon exposure to ozone, hydrogen sulfide, or air containing sulfur.

Here

So it generally has a fair amount of industrial use as compared to Gold.

I, much like you, did not like the idea of spending my relatively low income to amass a few Gold coins which are highly indivisible, but there are advantages to both. Personally I chose Silver. It has been clobbered recently, but that has made my purchasing of it all that much more tantalizing. Yes it could go down, but I cannot recall a time in history where individuals have ran into the street and dumped their Precious Metals because they have been rendered worthless. On the other hand, many times has this happened with fiat currencies.

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