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Why Gold Could Be the Safest Investment Out There
goingbroke
Posts: 1,410
Many successful BST transactions ajia
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mariner67, and Mikes coins
(x2,Meltdown),cajun,Swampboy,SeaEagleCoins,InYHWHWeTrust, bstat1020,Spooly,timrutnat,oilstates200, vpr, guitarwes,
mariner67, and Mikes coins
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Even in the post-gold-standard years, gold has never surprised with a sudden crash. With one exception. In January 1980, the Soviets invaded Afghanistan. The world was already shaken by the 1979 oil crisis and the Iranian Revolution that was drastically changing the balance of power in the Middle East. This geopolitical earthquake made the gold price skyrocket from $559 to $843, only to fall back to $668, all within the one month of January in 1980. However, it is probably safe to say that this was a very short window of opportunity and virtually no private investors managed to buy gold at the peak that lasted only 2 days.
I find the above quite interesting because it seems that the first thing fiat bugs reference is all those poor saps who bought gold at the peak in January 1980....and then held on for 20-30 yrs. I've never met anyone that bought gold within $75 of the January 1980 peak, let alone someone who did that and then held on to it for 20-30 yrs.
roadrunner
Over the long run what is safe is a diversified portfolio of relatively low-risk assets across multiple asset classes (equities, bonds, real estate, commodities, etc). Gold may play a part of such investment portfolio. But gold cannot act single handedly as a hedge against all risk, nor its long run performance as an investment very profound (real return since the beginning of 1976 has been approximately 2.2%).
Gold is a speculative play. No more, no less. It may be a good investment today due to (reasonable) concerns about currency debasement, but it is not a safe investment. There is nothing that provides neither an upper bound nor a lower bound to its value (except for a low level industrial value and aesthetic appeal for jewelry).
Your article argues that gold is not speculative because it does not hold the risk of a sudden crash. This is not a sound argument (something's 'speculativeness' is not defined by its ability to rapidly crash; merely the fact that it can be reasonably expected to lose its principal value is sufficient to be deemed speculation) but let's pretend for a moment that it is. Gold would fail this test because it is subject to sudden crashes and high volatility.
Your failure to provide yearly range of prices masks the true proportion of the 1980-1982 crash. The gold price varied in 1980 from $482-$850. Your selection picks $508 (near the 1980 minimum). In 1981, gold prices varied from $599 to $391. The 1981 May selection shows a value of $485. The 1982 range was from $481 to $296. Your 1982 May selection shows a value of $399. This isn't even accurate: the spot price of gold in New York on May 4th was $341 (according to my sources at least; a free data source that supports this is www.usagold.com/refere... but there are other more reputable sources that would support my claim but are behind a paywall). You note that you should not take the absolute peak of the market price as a "high water mark" since few investors would have joined in during that foray. You cannot then disregard the huge range in the following years since most retail investors would, similarly, not be able to time the market very well and may sell at an inopportune time.
Even if you take the relatively low May 1980 value as your base point for the crash, by 1982, the value was only $341. This does not take inflation into consideration. From May 1980 to May 1982, the dollar inflated by 25%. This means that the real value in 1982 of $341 was only $256 in 1980 dollars. This means that - even taking a low value from 1980 - the price of gold collapsed over 50% in two years. This is a far cry from your chart which purports only a small 22% decline in price during the same range. And again, this is taking rather favorable numbers. If you take the 1980 peak and compare it to the 1982 low, the inflation adjusted decline is a staggering 73%. This is about the same collapse as the decline of the NASDAQ composite after the Dot-Com bubble (a loss of around 78%) in a similar timeframe (March 2000 to October 2002). Over the similar two year timeframe, the Dow Jones composite fell far less peak to trough than the real gold price loss from 1980-1982: only about 36%. Even the generational crash of the broad markets in 2008/2009 was only 57% - less than the 73% real decline in the price of gold over a similar timeframe from 1980-1982.
To show how "timing matters", you can cherry pick the NASDAQ data and show that the DotCom bubble was very mild as well. If you take high-water April values for the NASDAQ, you see that the bubble wasn't very impressive: in 1999, it was 2484, in 2000, it was 3321, in 2001 it was 2079, and in 2002 it was 1800. Inflation-adjusted this is, again, the same as the decline in gold using the dating methodology the article used for gold pricing (about 54%). Clearly, the April 1999 broad NASDAQ composite is the safest investment in the land and not a speculative instrument!
Your article's premise is incorrect: gold is subject to rapid price declines. No matter how you slice it, gold is speculative by definition (beyond the standard "all investing is speculative"). The only value it provides as an investment tool is hopes that it will go up in value, or, at the very least, decline less than other assets.
Please quit selling gold as a "safe" investment. It is not a safe investment. It is not a refuge. It is by definition a speculative instrument. At any time the value could collapse for any reason. I expect that the value of gold to continue to rise over the short run, and as such, I hold a long position in gold, and have since 2006. I don’t believe it is necessarily a bubble: there are very reasonable concerns regarding currency debasement and sovereign debt crises. With that said, I understand the risks: it could at any time collapse - and very rapidly, just like it did in 1980.
<< <i>Nice link. Definitely not reading material for fiat bugs.
Even in the post-gold-standard years, gold has never surprised with a sudden crash. With one exception. In January 1980, the Soviets invaded Afghanistan. The world was already shaken by the 1979 oil crisis and the Iranian Revolution that was drastically changing the balance of power in the Middle East. This geopolitical earthquake made the gold price skyrocket from $559 to $843, only to fall back to $668, all within the one month of January in 1980. However, it is probably safe to say that this was a very short window of opportunity and virtually no private investors managed to buy gold at the peak that lasted only 2 days.
I find the above quite interesting because it seems that the first thing fiat bugs reference is all those poor saps who bought gold at the peak in January 1980....and then held on for 20-30 yrs. I've never met anyone that bought gold within $75 of the January 1980 peak, let alone someone who did that and then held on to it for 20-30 yrs.
roadrunner >>
Same probably holds true with silver ... during the Hunt brother time frame, I know of no private individual that held on to their silver for more than a day or two...Silver daily swings became a game of buying in the morning & selling in the afternoon.
I guess I'm betting that gold will outperform silver in the future, but it's also nice that gold takes up less space then silver.
<< <i>With silvers current run up I decided to switch all my silver into gold. I had a pleasant transaction with APMEX with this.
I guess I'm betting that gold will outperform silver in the future, but it's also nice that gold takes up less space then silver. >>
Sometimes the best avenue, when in uncharted territory, is to do nothing & that's what I'm doing right now. It's a wait & see where the dust settles game for me.
Note - I did not hold onto the bullion from 1980 until 30 years later. That would've been pretty stupid, now wouldn't it?
I did go back into a silver contract briefly in 1981, just long enough to get burned for $1,000. That cured me until 1998, which is when I started accumulating bullion again.
You can say whatever you want to say about precious metals - this current environment feels much like 1978-1979 but it is not getting "better", it is getting "worse". We don't yet have a Paul Volker in place and we don't even know what the impact from the monetary inflation of the past 2 years is going to look like, nor do we have any idea what the tax increases that are currently in place will do to the economy, nor how the government will react to the economy when it craters due to the damage that has already been done to businesses and to individuals because of health care bill-related cost increases and continued unemployment.
To me, this ALL says "price increases" due to "quantitative easing" which is the new term for "inordinately reckless government spending and money printing to pay for it all".
So in reality things are not really comparable to 1978-1979 even though it feels similar at the moment. We are looking at a major real estate ownership disaster that will continue to affect real estate for the rest of our lives. We are looking at a debt load unlike any other time in our history, and there is no likelihood that anyone will have the fortitude to raise interest rates without killing off the bond market entirely.
Let us not forget what the bankers have done to us and who rewarded them with a bailout for doing it. Nothing is fixed or repaired. Things are not going in the right direction. Hopefully, they will. That remains to be seen.
I knew it would happen.
With silvers current run up I decided to switch all my silver into gold. I had a pleasant transaction with APMEX with this.
I guess I'm betting that gold will outperform silver in the future, but it's also nice that gold takes up less space then silver.
I would think that the downside of playing these shorter term spreads and trends is forking over the 28% cap gains tax on each transaction rather than letting it just ride. It sort of acts like an inverse dividend chewing away at the principle.
roadrunner
I guess I'm betting that gold will outperform silver in the future, but it's also nice that gold takes up less space then silver.
If you are one of those bright individuals who can discern the subtleties of how the gsr changes in relation to the economic environment, more power to you! It may well be that gold will become the predominant monetary device when the pressure is on.
I tend to like the diversification route with at least gold & silver to buffer the vagaries in each other's trendlines. I still note that platinum and/or palladium also still functions as a nice third leg on the stool by providing even more stability. All three are in a longterm bull market due to the dollar and bond market fundamentals, and all three are handy in terms of liquidity and storage.
The only problems that I see with grains is that they require 3rd party storage, can't function as a (monetary) trading vehicle (i.e. a currency) and are seasonal (so you'd better know the markets). However, you CAN eat them if you buy a mill and take delivery.
I knew it would happen.
<< <i>
It may well be that gold will become the predominant monetary device when the pressure is on.
.
Hasn't that possibility already established itself in the past couple of years ? I would be very happy sitting on all gold and no silver.
we should buy future contracts on sesame seed buns?
Camelot
<< <i>So, your saying that since we are the breadbasket of the world,
we should buy future contracts on sesame seed buns? >>
not familiar with sesame seeds futures ... however, grain, corn, soybean or even hog bellies might be a possible alternative to PM's.
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