Taking out a personal loan to invest in Gold

deutsch

This long term loan, would be a long term investment in Gold for 5 years.

I just have a feeling for the next half decade, Gold is going to shoot up so much more than the low interest rate loans that are available.

I have money to invest in gold, but combining it with a loan, would mean I could buy more.

Giddytimes

This is a risky strategy depending on the size of loan you are talking about. What happens if you're wrong and gold prices fall instead? You're stuck with the loan to pay. Can you afford the monthly payments regardless of the performance of your gold?
Do you have other investments to balance your portfolio or are you thinking of just putting everything you have-plus borrowed money into gold?!

Say you can take out a loan at 7.5%, you'd need a 10.5%pa return on gold at least-just to be achieving the same net result as a savings account.

I'd stay well clear of this, no one can see 5 years into the future and Gold is already at a record high, things that go up must come down.

dunstonh

If anyone wants signs that its time to get out of gold, then its threads like this.

Gearing into a single asset after a massive price boom which is now fashionable is damned high risk.

shaun_from_Africa

If you have some disposable money Then I would say that investing it in gold is fine provided you do a lot of research first.

However, taking out a loan to buy the gold is not a good idea.
The chances are that the interest rate on the loan will be somewhere around 6 to 7% and if invested, this money would get maybe 2% interest.
Once you take the spread of buying/selling gold (around 3 to 4%), this means that gold would have to increase in value by 12% before you started to see any return.
You also have to factor in the cost of storing & insurance if you get physical gold.

If gold was to fall in value (IMO this is unlikely, but that's just my opinion and could easily be wrong), you would be paying a loan for an asset that is worth less than the loan amount.

le_loup

Excellent idea OP. Do it now.

Geoff23

Giddytimes wrote: »

I'd stay well clear of this, no one can see 5 years into the future and Gold is already at a record high, things that go up must come down.

Whilst I agree with your general sentiment (I think I'd personally pay off all my outstanding loans/debts/mortgage before buying gold), I'm not sure it is true in this case that what goes up must come down. It may be that what happens is the price of gold denominated in fiat currency keeps going up and up and up until it breaks the existing monetary system and helps to give birth to a new one. I'm not saying this is definately going to happen, but given the current state of play, it is a very real possibility.

Geoff23

Shatners_Bassoon wrote: »

It probably takes me more today than any other time in my life to the GATA view that banks have all along both overtly and without transparency just been selling gold. And I think that they have to be selling gold now to keep things under control. So I don't know where all of this gold is coming from that everyone is buying because every time I look at a data point in gold it's plus 20%, plus 30%, plus 100% and you turn around and look at gold supply is (only) up 2% per year. So I have no idea where the gold is coming from, but somebody is supplying this market that is doing it surreptitiously.

I agree. You'll find that most of the UK bullion dealers have run out of old bullion sovereigns and now have waiting lists of buyers for those, but in the past few days they have taken delivery of a load of shiny new 2011 sovereigns straight from the mint. This tells me that somebody has decided to boost the production of new gold coins. Where is the gold coming from, given that all over the world people/banks/organisations are buying lots more of the stuff and nobody appears to be selling? The obvious suspicion is that this is gold that somebody-else already thinks they own! Could it be the UK's national gold reserves?

mr_fishbulb

Shatners_Bassoon wrote: »

Silver will outperform Gold in the next 6-12 months.

Embry article:

http://www.sprott.com/Docs/InvestorsDigest/2011/MPLID_080511_pg261Emb.pdf

KWN Sprott update

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/8/18_Eric_Sprott_-_The_Price_of_Silver_Should_be_$110_to_$120_Today.html

Well if there's an article on the internet then it must be true.

Shatners_Bassoon wrote: »

Eric Sprott - The Price of Silver Should be $110 to $120 Today

What was it John Maynard Keynes said about markets being irrationional for longer then you can remain solvent?

atush

Invest in gold if you have the cash- fine. I hold gold too.

But to borrow money to invest is pretty darn STUPID.

thenudeone

It's completely and utterly bonkers. No matter what happens to the price of gold you will be stuck with a loan the same size as you started with; plus interest.

Of course many people do essentially the same with property when they buy a house with a mortgage, but then they are using the asset to live in and saving substantial sums in rent. Even if you're buying a buy-to-let property with a mortgage there is a reasonable chance of getting sufficient rental income to cover costs, so you're not reliant on asset appreciation for the return.

Perhaps some of this is required:

pqrdef

Giddytimes wrote: »

Say you can take out a loan at 7.5%, you'd need a 10.5%pa return on gold at least-just to be achieving the same net result as a savings account.

Run that by me again.