“Silly girl, it was never meant to be worn as a suit.”
Posted on 06/01/2006 8:10:31 AM PDT by Grampa Dave
Gold ready to crash? Commentary: The problem with precious metals By Jesse Czelusta, Index Rx Last Update: 8:01 AM ET Jun 1, 2006
Jesse Czelusta serves as a technical advisor to the Index Rx investment letter, which is edited by his father, Lawrence Czelusta, and is a PhD candidate in economics at Stanford University. (indexrx.com) SAN ANTONIO, Texas (MarketWatch) --
Despite the recent pullback, gold and silver are very much in fashion. The fact that history has witnessed recurring periods of Au and Ag mania is evidence that Mr. Barnum's estimate of the birth rate is merely a lower bound.
Just listen to the din coming from the circus touts, ringleaders, and big top patrons themselves:
"Silver at $40 an ounce! Invest now, don't miss out!" screams the latest get-rich-quick pamphlet to litter my desk.
"Gold at $2,000?" queries the headline on one of my favorite on-line investing sites.
"Gold is the best investment that a housewife can make," I was recently informed by a member of said caste.
Indeed, the past few years have generated a frenzy of speculation in precious metals investments. But a broad-based fall in precious metals prices, if not imminent, is at least inevitable. Any interest in precious metals (as distinct from mining companies' stocks, which are better long-term investments but subject to their own set of limitations) as anything other than a disaster hedge, a short-term gamble, or jewelry is grossly misdirected.
Contrary to popular belief, long-run demand is not growing more quickly than supply.
Imagine that in the year 1900 your great-great grandfather had listened to the advice of someone touting precious metals. How would his investment have looked one hundred years later?
Not so great. At the start of the year 2000, prices for gold and silver in real terms were about the same as they were one hundred years before (see charts). Demand (largely from industry) has increased, but supply has on average kept up.
World mine production today is almost 25 times as high as it was in 1850 (again, see figures). New discoveries and technologies have allowed gold and silver production to continue to expand.
But won't these new sources of supply dry up sooner rather than later? Doubtful.
Supplies are coming not only from countries that are relative newcomers to precious metals production, but also from countries and regions that have long been mining gold and silver.
The U.S. mines more gold today than it did at the height of the Gold Rush in 1853. Gold and silver production in Australia, Peru, Mexico, Brazil, and so on -- countries with long histories of mine production -- are stronger than ever.
The proximate lesson of history for investors is clear: gold bullion is second only to hiding your money under a mattress as one of the worst possible long-term investments. If you are intent upon hopping aboard the gold fever bandwagon, then stick with stocks. Better yet, stick with stock index funds. Funds like DWS Commodity Securities SKSRX or GDX an exchange-traded fund offer investors a way to purchase a diversified basket of commodity company stocks at relatively low cost.
On the other hand, history also tells us with respect to commodities that what goes up will almost certainly come down. If you think the gold fever has run its course, you could instead make a contrary play by shorting streetTRACKS Gold Shares which both track the price of gold bullion. Or you could make a highly aggressive move by purchasing puts on the optionable GDX.
If you do make a foray into commodities, be prepared for the inevitable boom and bust cycles. Commodities (like stocks) are worth only as much as the investment masses think they are. Just because your personal opinion is proven right in the long-run does not preclude the possibility that you will miss out on substantial, sentiment-driven profit opportunities in the meantime.
This is why Index Rx employs a mid-term relative strength model, rather than editorial prescience, to pick funds. Neither of the editors of Index Rx would have recommended precious metals twelve months ago. In fact, we purposefully exclude commodity funds from our portfolios because of their volatility and lack of potential for long-term appreciation.
Yet we've benefited from the run-up in commodities prices (and arguably from the dollar's decline) by investing in international and emerging market funds over this period. Our more aggressive portfolios have accrued large returns over the past year via ETFs like iShares MSCI Emerging Markets (EEMiShares:MSCI Emerg Mkt VPL ) . Although May's drop was precipitous, this short term decline is vastly outweighed by these ETFs' 12-month gains.
While the final numbers were not yet in as this article went to press, recent market action looks likely to move us away from emerging markets and into developed economies. Funds like iShares MSCI EAFE Index (EFAiShares:MSCI EAFE Idx.
Whatever strategy you choose, remember: All that glitters is not gold, even gold itself.
Really? Artwork and rare items appreiciation is non taxable?
I buy a painting for $10,000 and sell it the next year for $50,000 and no capital gains are due?
Watch when the 'litte green line' crosses the 'little red line' and the sellers stop dominating and the buyers move in, then the stoicastics and fibonacci indicators will tell you that gold is about to take off.
I know that you know this because you posted what you did with the graphs. The graphs are all these people need to see what is about to happen. Inane comments only reveal they are ill-informed. Thank you for tell them the truth in these graphs.
"This should stir the Free Republic early morning stew pot
Yep!!"
'No doubt!'
In 50 minutes, this thread is approaching 100 replies. Compare that to some serious threads, which might make 30 replies in week.
"Mister, you never had a dog."
He sure called alot of people "Mister" in his movies.
Whoops! Too late! Somebody already beat me to it.
Dang, it George, you gave me a Wave induced headache!
“Silly girl, it was never meant to be worn as a suit.”
In 1900s gold price was fixed, as was the metal content in Eagle coins - thus building a hoard an Eagle a month or investing in a lump would not have made much of a difference. And from FDR to Nixon [investing "several decades later"] gold investment would be a bit inconvenient.
One of my wife's and my favorite real Bond Scenes.
"Could the author also be using newspundit.net for his financial news and information?"
Bubble, bubble, toil and trouble. Oh well, there are other, hit generating hot-button issues. Clickety-click, yadda yadda, lol.
Correct. All these folks hear about something at the trade shows or whatever and they think they will get rich by next weekend. Just like options.
Look at silver. It lost over a buck in the last couple days. Am I all heartbroken?
No, because I've been buying small amounts over an extended period of time. I got some I paid 3.75 for. The most I paid is about 9.25 So everything I got is worth way more than I paid.
I wouldn't know, none of my friends are goldbugs.
It is about preserving wealth.
That's right. Preserved 87% of it's value since it peaked.
Go back to the post you responded to, and learn about "averaging in."
You'll have to explain what dollar cost averaging has to do with a 13% decline in your guaranteed store of value.
And remind me where to put my money that won't go down 13% in a few weeks, nor lose money with respect to real inflation, nor risk disappearing in a financial crisis.
Thanks for pointing out that there are no guaranteed stores of value.
The truth is that gold has gone up so much that I'd be leery of getting into it at the top of a cycle. That's a probable buy high sell low scenario.
It has a pretty good history as something valued by people - what, 5000 years? With that kind of track record, I would contend that the burden is on you to explain why that is about to change or, as you seem to suggest, has changed. To the latter point, it is still worth $631 an ounce as I type.
Don't look at the price of copper wire for electricity if you don't want a heart attack. I saw 200ft. priced at $102 at Home Depot last weekend. GAG!! I paid $28 less than 2 years ago. INSANE!
There is NO WAY IN HELL I would have ever gotten that without google. I don't even remember the movie!
"A close relative of mine that I have been known to sleep with from time to time"
Oh lordy, I hope you're talking about your wife here, lol.
True. In 1935 an ounce of gold would buy a great suit and today an ounce of gold will buy a great suit.
Now compare that to this...
In 1935, selling an ounce of gold and buying the equivalent of the DOW or S+P and holding till today would buy you THE ENTIRE SUIT FACTORY!
That's why precious metals collectors diversify into brass and lead at some point. :)
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