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How does Gold look from an INVESTMENT standpoint? And is this even an investment to begin with? Since gold was a fairly fixed price prior to 1970, we can really only look back at the last 45 years of data to determine the average price of gold, and adjust that for inflation. If we take the price in 1978 of $208 an ounce, we can reasonable determine that would be $838 in today’s money. As we know, gold right NOW is $1200 an ounce. This means that effectively your gold went up in value 45% adjusted for inflation…over 40 YEARS. Just as a comparison, the SP500 index went up in value 630% during that same period, adjusted for inflation.
So given that…in 40 YEARS, gold only went up – on average – of about 1% annually, adjusted for inflation. Versus the SP500, which went up in value 5x MORE during that same period.
First, Gold is also just really, REALLY inefficient to invest in. Owning PHYSICAL gold has many drawbacks…first, there’s a wide spread between bid and ask prices to ensure that the moment you purchase gold, you are IMMEDIATELY underwater on your so-called “investment.” Then you have shipping costs for an expensive metal that you’ll have to include, as well. Then once you get your gold investment, you’ll have to figure out how you’ll store it. Other companies charge you for storing your gold.
Another important distinction when it comes to gold is that gold doesn’t throw off cash, much like a stock’s ability to produce income for the share holder. It doesn’t give you interest…it just kinda sits there, looking pretty.
So why do people even consider this an investment? Or why is this even called a hedge against an inflation? Well…the reality, is that it’s neither. It’s a hedge against FEAR. The more people FEAR about inflation, economic issues, or defaults…the higher the price of gold climbs. The thought process is that while paper currency can’t be trusted, GOLD will also retain value. But U.S. Treasuries Securities have never been defaulted upon in anyone’s lifetime.
So here’s the moral of the story…golds prices are correlated with our fear in the economy, whether or not it’s warranted. After its peak in 2011, when was pretty much the BEST and lowest times to buy just about anything in the markets, gold was at its highest…and has been on a slow decline since then. And remember Warren Buffets “Golden” Rule? Be GREEDY when others are FEARFUL…and FEARFUL people are the ones buying GOLD.
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