Your comments please.........
edmundfitzgerald
Posts: 4,306 ✭✭
Many commentators like to speculate on where the dollar-denominated gold price is ultimately headed. Some claim that it is destined to reach $3,000/oz, others claim that it won't top until it hits at least $5,000/oz, and some even forecast an eventual rise to as high as $50,000/oz. All of these forecasts are meaningless.
Long-term dollar-denominated price targets are meaningless because they fail to account for the change in the dollar's purchasing power, and the only reason a rational person invests is to preserve or increase purchasing power. To further explain by way of a hypothetical example, assume that five years from now a US dollar buys only 20% of the everyday goods and services that it buys today. In this case, the US$ gold price will have to be around $7,000/oz just to maintain its current value in purchasing power terms. To put it another way, in our example a person who buys gold at around $1360/oz today and holds it will suffer a LOSS, in real terms (the only terms that matter), unless the gold price is above $7,000/oz in January-2016. Considering a non-hypothetical example to make the same point, a resident of Zimbabwe who owned a small amount of gold and not much else would have become a trillionaire a few years ago, and would also have become broke.
Long-term dollar-denominated price targets are meaningless because they fail to account for the change in the dollar's purchasing power, and the only reason a rational person invests is to preserve or increase purchasing power. To further explain by way of a hypothetical example, assume that five years from now a US dollar buys only 20% of the everyday goods and services that it buys today. In this case, the US$ gold price will have to be around $7,000/oz just to maintain its current value in purchasing power terms. To put it another way, in our example a person who buys gold at around $1360/oz today and holds it will suffer a LOSS, in real terms (the only terms that matter), unless the gold price is above $7,000/oz in January-2016. Considering a non-hypothetical example to make the same point, a resident of Zimbabwe who owned a small amount of gold and not much else would have become a trillionaire a few years ago, and would also have become broke.
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So figure you get back $4,200 or so and reinvest it in gold at $7,000. Where you once had a full 1.0 oz., you now only own 0.6 oz. Every time you realize a "profit" the government takes a rake to your winnings. Be careful how you manage your gains.
In another thread, a forum member just cashed in all of his rolls and got bullion. Those rolls were sold at a net loss from the original purchase price, and he should DEFINITELY offset any gains for anything else that he sold with that loss.
I knew it would happen.
So although your original premise is correct, it applies to ALL investments, and not solely to gold. Of course, if you tucked $100,000 away in cash today and the next 5 years brings your hypothetical example.....well, that would be the largest loser of all. Which is exactly why most of us stockpile PMs in the first place.