Posted on 10/21/2001 4:33:38 PM PDT by robnoel
THESE are certainly interesting times in investment markets and all sorts of bizarre assets are suddenly being taken seriously by the clever money managers.
The classic "barbarous relic" is gold, perhaps the original store of wealth. While it returned an annual average of almost 20 per cent from 1968 to 1979 - ahead of virtually every other form of real or paper asset - it has savagely underperformed shares and property since then. But every dog has its day . . .
Gold has always been seen as a safe haven in dangerous circumstances. Many Americans believe the Four Horsemen of The Apocalypse are about to ride into Manhattan, and are feeling scared and financially battered. They are retreating to hard commodities such as gold that they see as offering security.
They have suffered a $4,000bn reduction in the value of their portfolios; many are experiencing a bear market for the first time. They are frightened that there will be a full depression. The present psychology of buying gold is about preservation of capital, hedging and playing the contrary game.
One of its great disadvantages is that it generates no income. But in the current low interest rate climate, the yield on cash, bonds and the like is almost negative once inflation is taken into account. So by buying gold now you are missing very little on the dividend front.
It is all about the capital gain - or loss. At least gold is highly liquid, with minimal commission charges, unlike most other alternative asset classes like property and venture capital.
Moreover, experts purport that gold is negatively correlated with other assets - it rises when they fall, and visa versa. If you buy this argument, then the current decline in stock prices is a major gold-buying signal.
There are various ways to play the gold market. One can simply buy hallmarked gold bars at about $280 an ounce, or bullion coins such as Krugerrands at a small premium, or gold futures or options.
It is important to check the custodial arrangements for the physical metal and the credibility of the financial institution that helps you; instead of them storing it you can always take delivery - but you had better get insurance! You can even invest in numismatic coins, but these sell for a substantial premium to the value of their gold content.
Alternatively you can invest in gold mining shares. Gold mining equities offer greater leverage than holding the metal directly, but also added forms of risk. These types of shares can be highly volatile and difficult to value on fundamentals.
They are mostly quoted on the Australian, South African, Canadian and American stock exchanges. Do take care and remember that dubious promoters, speculators and charlatans often manipulate small mining stocks.
The world's quoted gold mining shares have a total market capitalisation of $30bn-plus, so there is plenty to choose from. If you want a conservative investment, pick a solid multinational like Anglo American, Barrick Gold or Newmont Mining.
The price of gold is determined by a host of factors - mostly macroeconomic. Central banks hold about a quarter of the world's gold and carry out selling and lending activities - often fairly secretly.
Annual world production is about 2,350 tonnes, while consumption varies, but is about 75 per cent for jewellery, and the rest for the electronics industry and dentistry. Consumption easily outstrips supply. Yet simple supply and demand from users and producers is only one element of the metal's overall price dynamics.
In the early 1980s, the era of high inflation, gold peaked at $850 an ounce - in the past 20 years it has fallen to a third of that level, partly thanks to improvements in technology cutting the cost of new production. This woeful investment performance encourages the diehard gold bugs to believe that gold is incredibly cheap and due for revaluation.
They feel the panic over war and recession will increase investment demand. The gold bulls say gold rises when the dollar falls - and many commentators believe the dollar to be overvalued.
They like the shelter and stability gold offers, and its retained purchasing value. They cite the example of how an ounce of gold would buy a suit today - just as it did in Henry VII's day.
Investing in gold,as a pure play, is throwing your money down a rat hole.
When gold starts to run, it usually runs pretty far before crashing again. A great way to play it is gold stocks. Catch it right and returns can be 10 to 1. Just hide and wait til the time is right.
And if you put a $1000 in a CD a year ago at 5% you would have $1050 with zero risk.
I'm up 19% in the market since Sept. 19. Guess it depends on what and when you buy.
stocks: buy on bad news, sell on good news
Gold and silver: buy on good news, sell on bad news
Or something like that.
With P/E's at least 2X what they should be...and going up...you must be nuts!!!! Not to mention that a reasonable valuation of the DOW would be 5000. The only folks putting their money in this stock market are suckers.
Consider the following scenario:
The terrorists have suitcase nukes in American cities. They blow one up in New York City. Everyone in every city in America panics, and evacuates to the countryside. After a few days, they realize they're being silly. So the file back to the cities.
Then another bomb goes off, in another city -- say, LA.
Everyone in every American city evacuates again. This time a whole month goes by before people begin to feel silly once more. And then the government assures us all is well. So we return to the cities.
Then Washington DC is blown off the map.
And we start to realize that our cities can never be safely inhabited again . . . and American civilization collapses.
Now, if you have to evacaute to the countryside with only what you can carry, which of the following will serve as a good medium of exchange to purchase food for your family from heavily armed farmers in the Post-Apocalypse Era:
1. Easily counterfeited paper currency of a federal government that no longer exists.
2. Credit cards of a banking system whose electronic records were wiped out when Wall Street became Ground Zero.
3. Gold coins.
-- But let's laugh that one off, folks. Terrorists having nukes? That's as silly as terrorists collapsing skyscrapers by crashing airplanes into them!
Took some profits and I'm looking for more oppourtunities.
The problem with gold coins is that one must have the wherewithal to protect and defend them. Once it becomes known that you are in possession gold coins, you will become prey to those who do not have gold coins. My suggestion is buy guns, ammo and hand tools, this will become the store of wealth in a shit-hits-the-fan scenario.
Yes, lead and brass along with the means to propel said lead is probably the ultimate currency in extreme conditions. But gold ain't bad. Its pretty, doggone it. And it will spend when you are out in the sticks dealing with honest folks in the red zones.
I must admit though, I'm glad I don't live in one of those liberal neighborhoods. :^)
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