investing in gold

so where do i go…what do i do…and stuff

If all you want to do is invest, use an ETF, like GLD.

Here is a question, why would you buy something as it is at an *ALL TIME HIGH*? Now is a good time to sell gold, not buy it.

Remember to make money, Buy low, sell High.

maybe it’s too late to invest in gold, beccause it’s so high

First, the disclaimer:

Next, the opinion:

Gold has more than quintupled in price over the last ten years, more than doubled over the last two years, and that kind of advancement is, IMO, unsustainable. At some point, people will start putting their money back into securities and other areas that are deemed too risky nowadays, and gold prices will drop dramatically.

First, the disclaimer:

I agree with ICOT, with one Caveat (and the same disclaimer).

The only reason why gold has increased is due to perceived risk. Chances are, the risk will go down, and gold may follow. However, as perceived risk goes up, gold may go up as well.

You can easily lose your shirt investing in gold. It could tumble in price very quickly.

What ICOT and GAW have said is extremely reasonable (as usual). Gold is normally thought of as an inflation hedge, and it doesn’t make a good “investment”. The same amount of gold that was created at the beginning of time is the amount of gold on earth today – it does not oxidize and it is not manufactured (can be through nuclear means, but that’s not done). The amount of gold available for buying and selling is something pretty hard to change – when the price of gold is high enough, people will sell their jewelry and mining companies will find it worthwhile to dig gold out of the earth at lower gold to ore ratios, but all that has a barely noticeable impact to the supply.

If you are worried about currency devaluation, as many people are when they think about all the money being printed at the Treasury department, then trading your currency for gold can make sense. After all, why let your dollars sit in a bank account and lose their buying power every time the money supply is increased? It is a much better idea to keep your savings in gold which hardly changes in supply. The gold will still be equally precious when you need to turn it into buying power. You might get more dollars or less when you sell it, but it’s a pretty good chance that the buying power hasn’t changed. You might or might not want an ETF for this purpose, as some people will advise only having physical gold serves this purpose.

However, the buying power of gold can change if there is a speculative bubble one way or the other. Some might say that the current price of gold is high because it is overspeculated. Others say that the price is currently low because it is undervalued. Gold definitely gets a lot of attention these days, but there is really no one who knows what the current price or the recent trend means. The price of gold could shoot up tomorrow, or it could crash and burn like it did in the 80s. Either way, speculating is risky. So unless you are taking on this risk as a hedge, or as part of a diversified portfolio, you are essentially gambling.

By the way, diamonds make better semi-conductors than gold, so arguing that gold is useful for that reason only makes sense as long as the price of gold stays lower than these commercial grade diamonds. Gold is a poisonous metal, extremely heavy, and not easy to use as currency except in large amounts. I don’t want to have any (though I own a small amount as part of a diversified portfolio).

bomb- wrong type of diamonds. Good luck with your investment, I hope it does what you hope for.

If you don’t have enough funds, you can buy an ETF or a mutual fund that holds diversified risk.

Gold has been going up, and is hyperinflated.

One thing to keep in mind, is that the returns now are not nearly what they were a couple years ago.

See, Gold today is about 1800. If you bought it at 1500, you made 300. But, that is only a return of 20%.

On the other hand, if you had bought Gold at 1000 and sold at 1300, same 300, but 30%.

bomb- in that case, your investment is unquestionably wise. I can guarantee you a better return investing in gold than spending it on garbage 🙂 ?

You plan on selling in the next year what you will now buy? Otherwise your point is irrelevant.

bombmaniac-

I recommend that you go to site usagold.com, and check out real-time gold prices, historical gold prices, and recent price trends.

Here are my main issues with your plan:

1) Be aware of the risks involved, including volatility. Over the last four weeks, gold has fluctuated from $1,700 to more than $1,900 an ounce.

2) Look at historical performance of gold and other precious metals.

Historically, diverse indexed funds have performed well.

Whichever way you decide to go, hatzlocha raba.

ICOT – Silver took an even steeper decline. it was from $43 an oz, to as low as $27 last night. thats $15 down which is 1/3 its value.

Someone told me the the hedge funds are selling off their holdings in gold because they believe that gold is going to go down significantly.

real-brisker-

That’s really something.

I hope people in the eyeglass business (who need to stock gold and silver frames), jewelers, and other professions that require an at-hand supply of gold and silver aren’t being hurt by these wild price swings.

Thinkin’ of the song ??? ?? ???? ??? ????? ??? ???? (if I coulda figured out how to add the musical notes from this laptop, I would have!)

real-brisker–

To repeat my initial disclaimer, I am most definitely NOT someone who should be relied upon for financial advice.

That said, my best guess is:

-in the short term (the next six months to a year) the price will bounce around between $1,400 and $2,050 an ounce.

-in the long term (3+ years) gold will retreat to $750 – $900 an ounce.

am yisrael chai–

Here are a few notes for your cut-n-paste convenience:

?? ??

600 Kilo Bear–

Hello!

I hope you are doing well, far from our shores IIRC.

Have a kesiva vachasima tova and a gut gebentched yor.

Icot- do you think oil prices are a bubble too? Will a barrel go back to 30-40? I dont think it will. Not for the same reason, I also dont think gold will go back to those pre-stimulus prices. What you are describing would be the result of a very painful deflationary period.

squeak-

do you think oil prices are a bubble too?

What you are describing would be the result of a very painful deflationary period.

=====================================

I feel a bit like a student disagreeing with the teacher and giving his reasons, knowing all the while that the teacher is aware of the arguments the student will bring, has already considered and discarded them, and will now explain why they are invalid.

Nonetheless, the above are my thoughts on this topic.

real-brisker-

What makes you think that golds value will decline in 3 years?

I think it will decline in significantly less than three years. In three years I think it will be about half of what it is now.

I think and hope the economy will pick up and/or people will look for money-making investments and opportunities rather than just a safe shelter in tough times.

Gold has been around for a long time, and it has never shot up in value and stayed up permanently – it’s always fallen back down. While a great deal of money can be made by correctly predicting a rise in gold’s price, historically it’s been one of the worst long-term investments you can make.

squeak-

Thank you for the encouragement and the kind words. I stand by my earlier assessment of our knowledge levels, but that hasn’t stopped me before and won’t stop me now ?

squeak: do you think oil prices are a bubble too?

squeak:I disagree. If you look back at 2007-2008 you will see what was possibly the greatest amount of speculation in any market ever. Michael Master’s testimony convinced – if not proved – to members of Congress that the $120/bb price tag was the result of speculation. The sheer number of uncovered contracts at the time made obvious the scale of the speculators’ influence in the market. As a result, they sought to enact reforms that prevented speculation. Gold has seen nothing quite like it.

squeak: I don’t wish. Cheap oil is not healthy and it’s not sustainable. If we artificially kept the price down somehow, what do you think would happen when (stagnant) supplies didn’t meet (growing) demand? You’d have China, India, and the US fighting for their share. The higher price encourages us to seek better (oil free) technology and limits the demand from poorer countries.

squeak: What you are describing would be the result of a very painful deflationary period.

squeak: The point is that people are not willing to shift their holdings. It’s financial suicide to park your money in any vehicle right now, as it’s been since 2000. Meanwhile the government has been printing money to pay for various stimulus programs. That causes inflation, which drives people with savings to park their money somewhere inflation proof- i.e. gold, because it’s supply doesn’t change. The logic being that even though I’m not going to gain anything, at least I don’t lose. The value of gold hasn’t gone up so much as the value of the dollar it is priced in has shrunk around it. The only way for the value of gold to come down now is if dollars start disappearing and the value of the dollar goes up – i.e. deflation. A permanent change to the money supply means a permanent change to the price at which gold will find support.

Stagflation is a sad commentary on the work ethic of our society. If our people were willing to work the way our ancestors who built the country did, such a state would not be possible. But that’s a whole other discussion.

squeak-

1. squeak: I absolutely agree that Masters’ proposed solution would have been a terrible idea. That does not take away from the elegance with which he described the problem – a tremendous feat.

icot: IMO he explained his point of view more convincingly than those who attempted to rebut him did. Just to be clear, a quick read-thru of his testimony vs. the points of those who disagree and/or think he has an ax to grind by no means finalizes who is most correct in my mind.

2. squeak: I am not aware of what you mean by the “current run up” in the oil market. To the best of my knowledge, the last run up was the one that took us to $120. After that bubble burst, the price dropped like a rock to the 30-40 range, but that was partially rubber band effect (snap the other way) and partially the fact that it was 2008 and no one had any money to take advantage of the arbitrage opportunity. Since that point, the price has more or less settled in the mid $80 range, with a relatively low standard deviation.

3. squeak: You wish for $30-40 oil prices without artificial means. In other words, you are hoping to drive out 50% of the buyers from the market. That means that you don’t want China, India, and other oil “newcomers” to have access to oil. I think of that as a selfish wish. [If you will say that your wish is not to remove buyers but to double supply, I will say unequivocally that this is a pipe dream. Production cannot be increased by anywhere near the amount you’d need, and even if massive amounts of oil were discovered today it would take years to reach the market- by which time demand will likely have overtaken it.]

4. squeak: I agree with you that the right way to create a disincentive is to raise the price through taxes and not through paying the suppliers more. This is not what is happening – the high price is the result of market forces and not disincentive actions. I am merely pointing out the silver lining when I say that it drives us to other technologies. If I believed in tax disincentives I could move to a country that has them (UK, Israel, EU, etc).

5. squeak: Your prediction of future gold prices is something I need to think more about. I think pretty much everyone agrees that there is a bubble in the gold market, but the question is how big is the bubble. You seem to think that 100% of the gains result from the bubble, while I think that the bubble is but one factor coming on the shoulder of price gains due to valid economic factors. It’s hard to deny that investors have permanently changed their thinking when it comes to currency and sovereign debt. It is also hard to deny the effect of inflation on a commodity that is not inflatable. My most liberal guess is that 50% of the gains in gold are from hype and fear – but if you put a microphone in my face I’d say my best estimate is 25-35%. But you could be right, as time will tell.

6. squeak: I don’t have any blame theories for the recessions. When I say that I blame stagflation on our work ethic, I mean something entirely different. In less comfortable times, people who had less did with less and dug their heels in. Many people, forced by poverty or other hardship, did things that no comfortable person would. Countless small businesses were created that way. It’s like playing the dice game craps- you might win or lose on the first roll, but if you roll the point you keep on rolling until you get something.

Now we live all in comfort- there are programs to fall back on in hard times, staples are cheap and easy to get, communication and transportation is taken for granted. We have giant efficient companies that make innovation and competition difficult and unnecessary. As a result, in bad times we are playing musical chairs – once you’re out you are eliminated from the game. You won’t find any laid off Vice Presidents looking for “unsuitable” replacement work because they don’t have to. The result is less competition in business, a tougher labor market, and more concentration of capital (rich get richer and everyone else gets poorer).

Thanks for taking the time to read and respond.

The financial world is something I know relatively little about, and I appreciate the chance to speak with someone who is more familiar with it.