Gold? Worth it?

DiggerUK

investme wrote: »

.....I am going to opt for an NS&I savings certificate. However after considering gold, I may split my investment with half in that and half in gold. What I want to know is; is it worth doing? ......

Yes.... If you alter the ratio it won't matter a great deal for now. I would suggest you put more in to NSI, until you are a bit more clued up on the benefits of gold. No problem from me if you put the whole lot in gold, but you seem to need to research gold a bit more so that you at least know what you are putting your savings in to.
NSI will cover you against inflation loss, and in my opinion gold will do the same.

Would suggest you buy UK legal tender, VAT free going in, CGT free when you sell. Sovereigns are ideal for what you are considering.

I have yet to hear an argument that convinces me of any long term risk in holding gold, in fact I have yet to find any risk at all with gold. It does not default, go bankrupt or become worthless.
Best of fortune.

Ark_Welder

DiggerUK wrote: »

I have yet to hear an argument that convinces me of any long term risk in holding gold, in fact I have yet to find any risk at all with gold.

• Gold is not a guarantee against inflation: http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm
• The price of gold does decrease (1980 to 2001)
• The use of ETF's (both physical and synthetic) increase the ease and speed with which gold can be traded. Potentially, physical holders might not be able to sell their holdings in a timely manner at the price that they expect if the price should drop dramatically: gold peaked at $850 on 21st Jan 1980. One day later is closed at $737.50. 5 days later, $624. By the 28th March 1980 it was $490.
• The cost of holding gold relative to the returns available from cash are very low. Once interest rates start to return to more normal levels the increased returns from cash might mean that it is less beneficial to hold gold.
• Low interest rates mean low cost of borrowing. So large (e.g. hedge fund) investors can borrow cheaply to invest in other assets, which includes gold and other commodities. Increasing interest rates could turn this into a less profitable trade and these geared positions would be closed, i.e. gold would be sold.
• If physical gold is held in the home, it could be stolen...(don't mention any household security measures in place on a public forum!!!).
• Gold might underperform other asset classes.

Any more? Possibly, but that is something for now. Does any of the above mean the no-one should invest in gold at these prices at this time? No: gold could retain its price and could increase in price for a while yet, and economic risk might still have a role to play. But interest rates have been trending downwards for 30 years, and cannot go lower. They might remain low for a good while too. But then again, they may not.

All assets have risks of one type or another.

kidmugsy

All fiat currencies - effectively, paper money - end up worthless. So if you plan to live forever, gold may be a good idea. On the other hand, if your interest is in buying a house in five years time, then no-one knows whether gold will prove to have been a good idea. But if you have a cheap and safe way to store some sovereigns, it might work out well. Or if you want to store some bullion in, say, Switzerland before exchange controls get imposed. Or if ........

jamesallen

kidmugsy wrote: »

All fiat currencies - effectively, paper money - end up worthless. So if you plan to live forever, gold may be a good idea. On the other hand, if your interest is in buying a house in five years time, then no-one knows whether gold will prove to have been a good idea. But if you have a cheap and safe way to store some sovereigns, it might work out well. Or if you want to store some bullion in, say, Switzerland before exchange controls get imposed. Or if ........

But gold is little different from fiat currencies. It has limited supply, but it has little intrinsic value. Its price can fluctuate just as wildly as the dollar, pound or yen.

sabretoothtigger

Good answers, atush and kidmugsy I think came closest.

I figured as a new investor, it'd be wise to avoid stocks, shares, spread betting etc as i have no idea what i'm doing.

Gold is a fairly extreme investment. We can say that because we do not have a practical use for it. Where as for example shares in BP we can relate to the cost of petrol. Either petrol price does down or we can presume BP will do better, win win (roughly - if BP isnt awfully negligent etc)

Gold might be good if you are going to buy a wedding ring for example, you would just be speculating on your future purchase

If that is not true then you are a bit out there. Gold is just not massively useful.
The reason gold price has risen and I think will stay high for many years is its used as a global form of money exchange and store of wealth. Central banks, countries do use it for that purpose

Gold is a bit like buying your holiday money early. Maybe you do well to sell pounds and buy Australian dollars or maybe not but in that case you would at least use it either way.


So what will you use gold for in future. Why sell your british pounds now. This is how you gauge your risk and your plan.

Gold is a form of cash at its best, at worst its a shiny doorstop but it will never be worthless like paper currency can resemble a bad cheque

The simple advice is never exceed 10% in gold or any one asset type

Gold is not a guarantee against inflation: http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm

The price of gold does decrease (1980 to 2001)

That graph shows buying gold was a good idea any time in the last century apart from a couple years in 1980 when interest rates went to 15%
Its definitely not a guarantee, nothing is. Its the closest thing I know of though

USA debt has an average term of 4 years and they are financing themselves at rates below 2% for 10 year debt. How are they ever going to repeat 1980 rates of 15% when they have grown so dependant on this cheap rate.

Politicians arent doing this to be nice to people, its for them and it makes their lives easier. They cannot pay these bills and win elections. Economics doesnt matter now, its the 2012 usa elections thats all that matters to whether rates rise or not.
I would love to see them obey some kind of principle and take a hard decision but its really unlikely.

How many people reading this can without struggling pay a mortgage at 15%
USA are never going to be able to raise their own rates properly, they cant afford it.
This affects the UK also

But gold is little different from fiat currencies. It has limited supply, but it has little intrinsic value. Its price can fluctuate just as wildly as the dollar, pound or yen.

They are opposites. Gold is impossible to make, it can be mined but only at great cost usually. Paper money is made now by adding a zero onto the end of a bank balance at a central bank computer, it couldnt be more different to me.
Even diamonds can be manufactured now. Gold is fairly unique in its properties. Im no fan of gold really but everyone should rate it over cash of banks where they use QE

you are buying something with no intrinsic value, and who knows? It could shoot down in price if the dollar recovers or if people choose a new safety currency.

You know this isnt true. Gold is a unique element, it doesnt do much but it does a few things better then anything else.
So it will always have some value. That value can vary, I agree.
I dont own any gold jewellery and Ive no interest in it, silver is an anti-sceptic at least. If the same was true of everyone in the world the demand would fall and the gold price would more then half Im sure.
It would still have value.

Paper notes are just worth the cost of that paper and theres a promise written on it by a politician. They are not unique and anyone in the world can make their own and write their own promise on it.
I imagine Canadian currency will rise vs dollars quite alot. If you dont like gold as cash buy them maybe but its base value is lower then gold

I outlined above why dollars are very unlikely to recover but alternative currencies I definitely agree with but gold will be one of those I think (already is).
If we see radical changes in this debt ceiling politics who knows what then, will be interesting which event happens

Ark_Welder

sabretoothtigger wrote: »

The simple advice is never exceed 10% in gold or any one asset type

So, not more than 10% in [edit] each of equities, bonds, cash, property, gold, other commodities..., other asset types?

sabretoothtigger wrote: »

That graph shows buying gold was a good idea any time in the last century apart from a couple years in 1980 when interest rates went to 15%

The 1980 peak was more to do with the outbreak of the Iran/Iraq war rather than interest rates. But the graph does show, with the benefit of hindsight, when was a good time to buy. However, buying in the '80s and '90s would have meant going against the consensus at that time, which was that other asset classes (e.g. equities and bonds) could provide superior returns. How many would have - or did do - that?

I outlined above why dollars are very unlikely to recover but alternative currencies I definitely agree with but gold will be one of those I think (already is).

IMF: Special Drawing Rights

sabretoothtigger

Not more then 10% if you want to say Iam a very sensible person. Alot of people own most wealth in a house but the practical benefit of owning their house is massive to them, its very justified.
The simple rule can be expounded, just avoid talking yourself into gold lust, its not a practical thing to own. Its a rich mans play thing, I aint rich


Russia invaded Afghanistan around then also though I never noticed at the time.
Nixon removed the gold standard in 1971. Spending policies altered quite alot, there was a number of factors.
Im not saying I know for sure or exactly but its very easy to point at that big rate number and say no way can that happen now

The cost of holding gold relative to the returns available from cash are very low. Once interest rates start to return to more normal levels the increased returns from cash might mean that it is less beneficial to hold gold.

Interest rates I reckon will always lag inflation till they make really big changes in government.

If inflation now is 5% and they raised rates to 4% base rate. That is a -1% rate of return on your cash.
Gold (on average) gives 0% rate of return. Thats pretty rubbish but this is what is supporting the price. People want to store wealth securely

Ark_Welder

sabretoothtigger wrote: »

just avoid talking yourself into gold lust

Agree absolutely wholeheartedly with this.

sabretoothtigger wrote: »

its not a practical thing to own.

Actually, I consider gold to be very, very similar to Coca-Cola: neither are products for which I have any personal desire, but I am quite happy to benefit from those that do.

Masomnia

investme wrote: »

Hey
Pretty amateur question but quite simply, is it worth investing in gold?

Some of you may of seen a recent post by me about where to save my money and i am going to opt for an NS&I savings certificate. However after considering gold, i may split my investment with half in that and half in gold. What i want to know is. is it worth doing?

I was considering something like goldmoney.com, where you deposit cash like a bank account, but own gold and obviously prices change accordingly.

I figured as a new investor, it'd be wise to avoid stocks, shares, spread betting etc as i have no idea what i'm doing.

So what's attracting you to gold?

I think that's what you need to ask yourself. You've discounted other asset classes; so why not this one?

As far as I can tell there are some very good reasons and some very bad ones for investing in gold, so I think you need to have a long and hard look at why before making any decisions. Tricky as it may be, posting some reasons for people to pick apart may be helpful.

Money_Saving_Dude

Froggitt wrote: »

Im also thinking of gold even though its pretty high. Reason......half the world is getting richer, ie India and China, and will want to start buying gold jewellery like the West has done over the years. People in those countries also seem to like gold teeth for some reason.........

Surely *fewer* people will buy jewellery if the price of gold goes up? It it costs more to make ear-rings and teeth won't the demand for them decrease?