Better Buy Gold

Ryan_Futuristics

pop_gun wrote: »

It seems everyone on this board is promoting stocks and shares and talking about portfolios.
I forget whether it's the DOW Jones or the FTSE that hasn't recovered it's 1999 highs. Which means long term investors have lost money. There's also brokerage fees and premiums associated with owning stocks and shares. So please spare me the spiel about investing in companies which are more often than not, a hair's breadth from insolvency.

I don't buy gold for it's monetary value (despite what I wrote in my original post about it's current price) but as a hedge against inflation and the likelihood of a new Bretton woods system.

Well despite (in my opinion) it being a fair point that the stock market isn't quite the pot of gold many bloggers and brokers want you to think it is, it still tends to be the best long-term investment

When you compare cash, bonds, property and commodities on a simple risk-vs-return basis, commodities (like gold) tend to come out worst, because unlike most other assets, they don't actually generate any value for you while you're holding them

The housing market might go up and down, but houses provide a rental yield; stocks and shares provide dividends from company earnings ... Money in the bank is lent to people and provides a return ... But commodities are just bets or hedges ... So there can be value holding them against other assets, in small amounts, but the risk (as they go up and down over time) generally isn't compensated as well as other assets you could own

masonic

Ryan_Futuristics wrote: »

An inflation-adjusted FTSE 100

Ryan, what is this "FTSE 100 Insex(sic)" shown in the chart? Is it total return, because it doesn't look like it is and Dunstonh's whole point was that the OP is overlooking dividends?

jimjames

pop_gun wrote: »

It seems everyone on this board is promoting stocks and shares and talking about portfolios.
I forget whether it's the DOW Jones or the FTSE that hasn't recovered it's 1999 highs. Which means long term investors have lost money. There's also brokerage fees and premiums associated with owning stocks and shares. So please spare me the spiel about investing in companies which are more often than not, a hair's breadth from insolvency.

I don't buy gold for it's monetary value (despite what I wrote in my original post about it's current price) but as a hedge against inflation and the likelihood of a new Bretton woods system.

So how does gold compare to historical prices?

FTSE 100 might be marginally below 1999 peak but FTSE 250 is 3x the level it was then.

Just like no one should only hold gold, you shouldn't hold only one index or market.

You also seem to have missed my point that it's the increase on the original value that matters AND it isn't the same as savings but closer to shares as gold fluctuates in value.

bowlhead99

masonic wrote: »

Ryan, what is this "FTSE 100 Insex(sic)" shown in the chart? Is it total return, because it doesn't look like it is and Dunstonh's whole point was that the OP is overlooking dividends?

It's not total return as the 'nominal' is going from 6900 in 1999 and 6700 in 2007 to 6600 in May 2013. That is just the capital number. If you are going to overlay inflation to try to show a real position, you have to include the total return in the first place otherwise you are just playing with garbage numbers.

It is from a simple website that overlays 'the purchasing power of money' onto a variety of price charts. While that might be reasonable when looking at the price of gold (although it does not explain whether this is US inflation, UK inflation or what) it is not at all useful if what you are charting is income producing and you are trying to work out whether the asset is actually growing in real terms.

You can't just say, hmm actually the return has not been great though - while cherry picking the data to say "assuming you bought-and-held near the peaks in 1999 or 2007", ignore the income, and then chop down the returns to make an arbitrary inflation adjustment. It just gives you a garbage result. If you buy anything near its peak, pay expenses to hold it, ignore income that it pays you, and then apply inflation to it to give a lower return, you will get a less than impressive return.

As an aside, if you rerun the numbers from the mid 80s which they do on the same page of the website that Ryan's graph was taken from, it looks like a better return, doubling your money after inflation (which is perhaps still sounding like a poor return for 30 years but as you can add on 30 years of income too it's fine.

Of course if you run the USD gold price against whatever version of 'inflation' they are using on aboutinflation.com it shows that the price now is still well below 1980 levels too. But cherry picking data to prove a point is not really helpful.

jimjames wrote: »

FTSE 100 might be marginally below 1999 peak but FTSE 250 is 3x the level it was then.

Exactly my point earlier. A sensible investor is talking about a portfolio of assets spreading their investments across a variety of companies and industries and regions.

We all have our own personal rate of inflation. But that will 'cost' us the same whether we got our returns from a bank account or a stock investment or a gold purchase and sale. So it's not necessarily useful to compare a potential investment to an arbitrary inflation number when you can just compare it to your other potential investments over different economic cycles. But generally if something is producing a few percent yield over the cost of holding it (like shares do) this will cover inflation.

As shares are parcels of ownership of companies, and companies - at least averaged over a broad portfolio - sell things for higher prices (albeit incurring higher costs) over time, that is your inflation covered, and so any underlying increase in net profits from productivity gains or expansion is a true gain. Which does happen over time, it just doesn't necessarily happen every week or every year in every company.

In the long term most people are looking to grow their assets not simply keep pace with inflation. If all you do with your gold holding is 'hedge inflation' it might be better than cash in a bank account but you have not created any wealth for yourself. That is why people take stock market risk, so they can put 10-20% of their salary away for 40 years of their working life and yet retire on some amount greater than 10-20% of their average salary for the 40 years of their non-working life.

So, when pop_gun says "It seems everyone on this board is promoting stocks and shares and talking about portfolios." it is because they are talking about investing to create wealth (albeit with some risk). While what he is doing is hedging to attempt to maintain wealth (albeit with some risk) by speculating that metal will be scarce and in demand in the future.

Given the two choices, I am in the former camp, i.e. stock market investment - because I need to grow my wealth. Someone already retired with as much assets as they need, may be in the latter, if they are not scared off by the monster real terms fall in gold price from 1980 which persisted for years and the significant volatility from one year to the next .

I am surprised that someone of the apparent financial situation of pop_gun (not retired, not on high income, needs to grow wealth) is instead choosing the route where he speculates on the price of a Britannia coin rather than the route where his pot grows over time from dividends and economic growth. Of course, it's true that people with lower disposable income are less able to take investment risk and might choose lower risk options than stocks and shares. However, given gold price and stock market indices can both drop by 40% in a given 3 year period, speculating on gold coins is hardly lower risk. It is just lower return, long term.

jimjames

Amongst all the froth about stock markets and headlines about index up or down what seems to be forgotten is that you're buying part of that business.

Unlike gold, companies want to make a profit and grow, that then feeds through to their owners over time. Yes there's a risk the company might fail but ultimately understanding what a share is would help people and their perception of stock markets.

NorthFin

Nocto wrote: »

To quote Warren Buffett:

"Gold gets dug out of the ground. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. Anyone watching from Mars would be scratching their head!"

He is right, gold is not really useful for anything. A tiny industrial use here and there, but it is always reclaimed.

Silver has all the properties of being money for thousands of years that gold has, and it is nessasary for modern life.

le_loup

Strange how, after gold has a tiny nudge up, the "gold is good" threads start again.

jimjames

le_loup wrote: »

Strange how, after gold has a tiny nudge up, the "gold is good" threads start again.

It is odd.

Surely the time to buy is when the price is depressed. Typical buy high, sell low scenarios.

mike88

Gold is only up 18% in 5 years and up 2.31% in a year; it's down 0.81% over 6 months and down 0.89% today. It has fallen considerably since its peak of $1889.70 per oz in 2009.

Of course those who buy physical gold pay a premium above these prices so the gains will be less and the losses greater. And there is a risk of getting physical gold stolen and if you don't declare any significant holdings on your insurance policies you will not be covered. Gold is a volatile investment if indeed an investment at all.

pop_gun

Ryan_Futuristics wrote: »

Well despite (in my opinion) it being a fair point that the stock market isn't quite the pot of gold many bloggers and brokers want you to think it is, it still tends to be the best long-term investment

When you compare cash, bonds, property and commodities on a simple risk-vs-return basis, commodities (like gold) tend to come out worst, because unlike most other assets, they don't actually generate any value for you while you're holding them

The housing market might go up and down, but houses provide a rental yield; stocks and shares provide dividends from company earnings ... Money in the bank is lent to people and provides a return ... But commodities are just bets or hedges ... So there can be value holding them against other assets, in small amounts, but the risk (as they go up and down over time) generally isn't compensated as well as other assets you could own

I was watching an interview with the economist Jim Rickards and he said something very pertinent.

The interviewer (Simon Black): Jim, what you tell somebody who is looking at financial markets, looking at stocks, looking at share prices for example, in much of the western world, going up and hitting all time highs and so forth. And them thinking, I understand it's risky but it keeps going up and of course I'm tempted. I want to get in there and make some money. What would you say to someone sitting on a portfolio right now, who understands that there are some risks out there, but really feels they need to be out there, investing. What do you think is appropriate for them?

Jim Rickards: well, I would ask that investor how would they feel about losing 30% of their money. That's the history of the stock market.