Honest question: Why is gold considered a good investment?

[Nuclear Unicorn]

No snark from me; I honestly don't know why.

I was listening to the radio when an ad for some concern that buys gold came on. The ad claimed they pay the highest rate for your gold which is apparently 80% of market value by weight. I will admit I do not know if this claim is true: 80% being the highest payment offered but assuming it is this seems a horrible investment.

If I buy $1,000 in common stock I have made a good investment if my return outpaces inflation by a mere percentage point or two. In other words, I'm looking to see forty inflation-adjusted dollars per $1,000.00 invested.

Apparently when you buy gold you're losing 20% plus inflation. If you buy $1,000.00 and immediately re-sell it you're only getting $800.00. You would have to wait until gold gained 25% in value over its purchase price ($1,250.00 at 80%) just to break even -- not including inflation incurred currency devaluation because prices have risen 25%.

Of course this is jewelry we're talking about. Craftsmanship can add more value but I'm surmising the gold is melted down (although I wonder if the rare "finer" pieces are re-sold at higher than by-weight prices).

I recently sold my old car for $1,500.00 (I still weep; I loved that little car so much). THAT was its value because that is what the buyer and I agreed to; not value +/- 20-percent. This gold thing seems tremendously lop-sided in favor of brokers.

[Ian David]

1. It takes up less room than Beanie Babies and lasts longer than tulip bulbs. n/t

[Gregorian]

2. From a discussion I heard on the Max Keiser show

When the gov. pumps cash into the banks (quantitative easing), the dollar loses value. That's the time to invest in gold. And vice versa.

That may not answer your question. There's more to it.

[dmallind]

3. While I think gold right now is a silly investment

I think you are conflating a couple of things.

The 80% is what glorified pawn shysters like cash for gold pay desperate people who need money and have some old jewelry around. While they certainly couldn't pay 100% (melting and sorting gold costs money) the difference is their profit margin.

If on the other hand you buy gold itself either as a ETF or as a hard commodity, your investment goes up and down with the market - no 20% loss built in there.

Gold gets more expensive as people get scared of stocks or bonds or currency and seek a "safe" investment - but that's why it's already up 400% or so in the last few years. If people get REALLY scared gold is fricking useless - only ammunition, guns, fuel and food will have much value. So the upside beyond now is limited. The time to buy gold was 4+ years ago. The time to sell your old necklace and ring is when you desperately need cash and 80% of $1500-1600/oz will help.

[JoePhilly]

18. good response ...

People lose a lot of money chasing each bubble.

They end up buying high and then selling low.

Gold is way up, and as you note ... I won't be surprised to see investors start to sell gold to buy stocks, which are basically flat over the last 8 years.

[iamtechus]

4. Just think of it like this:

Occasionally, the value of stocks, bonds and the paper money in your pocket goes to zero. The value of gold never does.

Of course things are not quite so simple but it should be obvious that converting paper to gold is wise if you happen to know that the paper will soon become valueless.

[Capitalocracy]

8. When does "the value of paper money in your pocket go to zero" "occasionally"?

That hasn't happened in the U.S. It certainly wouldn't be something I'd call an "occasional" occurrance, it would be pretty big deal.

[Nuclear Unicorn]

14. My thinking.

And if money did go to zero it will be bullets, not inedible, useless metal, that holds real value.

[girl gone mad]

26. It has happened in the US..

both with continental currency and the confederate dollar.

In the former case, a broad number of agencies had authority to issue currency, but there was no means of taxing the currency. In the latter case, confederate money became worthless by the end of the civil war (greenbacks also lost significant value).

I don't believe we presently face the risk of hyperinflation, but we do face a small risk of currency revulsion.

[Capitalocracy]

27. I wasn't really considering continental or confederate currency as a "U.S." example

And since the secession was illegal, therefore its currency was as well, so that doesn't really count.

[girl gone mad]

28. These are both US examples.

There is no reason that it couldn't happen again.

Like I said, I don't believe that hyperinflation is a real risk right now. Currency revulsion is a genuine risk,albeit a small one. The effect of currency revulsion within the US would be exactly the same as hyperinflation: the dollar would lose its value as a medium of exchange.

[Capitalocracy]

29. I'm not saying it couldn't happen

I'm just saying it would be pretty weird.

I know it can happen. I live in Argentina, it happens here every once in a while.

[Capitalocracy]

6. If you bought gold a few years ago, you would've made a hefty profit.

It has gone up quite a bit. But it's definitely not a stable or safe investment... as a matter of fact, it's likely that one of the major reasons it's gone up so much is because of its popularity among people who don't understand how it works.

People think gold will be the only valid currency when everything turns to shit, apparently. And recently I discovered what might be one of the reasons why: apparently there are some who believe God has given gold and silver an intrinsic value as currency. This means nothing in the current economy, it's just another commodity on the market that goes up or down, and often quite drastically quite quickly, which makes good money for speculators but certainly not a safe long-term investment, but there's a lot of money to be made scamming people, like Glenn Beck and Goldline have done, marketing gold coins at a cost well above their melt value while "advising" customers that they are a good investment.

Here's a gold seller talking about how God declared that gold and silver will always have value as currency even during the End Times on The David Pakman Show, w/transcript and video: http://subscriptorium.com/557/2samples/1pakman

[Scootaloo]

7. Because it's shiny

and birdbrains like shiny things

[KansDem]

9. That's easy!

A thousand men, say, go searchin' for gold. After six months, one of them's lucky: one out of a thousand. His find represents not only his own labor, but that of nine hundred and ninety-nine others to boot. That's six thousand months, five hundred years, scramblin' over a mountain, goin' hungry and thirsty. An ounce of gold, mister, is worth what it is because of the human labor that went into the findin' and the gettin' of it.

[msongs]

10. lol is that a quote from "treasure of the sierra madre"? nt

[KansDem]

12. !!

One of my favorites!

[tjwash]

24. ...

[KansDem]

30. "...you're dumber than the dumbest jackass..."

Let me tell you something, my two fine bedfellows, you're so dumb, there's nothin' to compare ya with, you're dumber than the dumbest jackass. Look at each other, will ya? Did you ever see anything like yourself for bein' dumb specimens. You're so dumb, you don't even see the riches you're treadin' on with your own feet. Yeah, don't expect to find nuggets of molten gold. It's rich but not that rich. And here ain't the place to dig. It comes from someplace further up. Up there, up there's where we've got to go. UP THERE!

I've read or heard that Walter Huston improvised this scene. Both Bogart and Holt were taken by surprise and, for a brief moment, look a little out of character as they didn't know what to expect.

A true American classic!

[piratefish08]

11. it's shiny

[MilesColtrane]

13. It's only a good investment if you buy low and sell high.

...or, if your country's currency collapses.

Those are two unlikely scenarios though.

[Doremus]

16. Dunno, but when governments collapse

and local currency becomes worthless, precious metals and jewels are among the things that people barter in its place.

I read a blog some time ago from a guy in South America who described day-to-day life after he woke up one morning to find that the government had seized all assets and his bank accounts were basically worthless.

Life beyond his front door became pretty dangerous at that point. One of his recommendations to others was to keep a stash of gold on hand for bribes and bartering. A relatively cheap gold necklace passed to a local police officer meant the difference between continuing on his way home or being beaten or arrested on trumped up charges.


Doesn't really answer the OP's question but if enough folks want to buy gold to stockpile as above the price would continue rising.

[Xicano]

17. Bookmarking for later

I just don't have the time to post at the moment. But gold & silver have not yet seen their highs.

[Whiskeytide]

19. I read somewhere a while back...

that gold is very stable, but is not a good profit making investment. The explanation was that in 1800, an ounce of gold would buy one good quality men's suit. in 1900, it would do the same. In 2000, again, the same. Since Beck and others have been vomiting pro-gold, we're all gonna die pawn shop ads over the last few years, the example of a men's suit may have become obsolete. Especially since Men's Warehouse will now give you two free, plus two shirts and two ties for every one you buy.

[former9thward]

20. Gold is a good investment. Jewelry is not.

If you invest in gold you must buy the bullion or gold exchange traded funds on the stock market like GLD. If you do that you will not lose 20%. It will go up and down like the price of gold. Gold has gone up for each of the last 11 years. I think it will easily hit $2000 an ounce this year. As long as countries, like the U.S. and EU, try to inflate away their debt gold will go up.

[mitchtv]

21. Not really a great investment

but a better insurance policy. you need a little to get out of the country if necessary

[rbixby]

22. If you invest in gold as ETF, can you actually cash it in for real gold?

I mean, I guess that would be the only way it could truly be 'safe'. It seems like a lot of these investments, if say, there was a huge government collapse, would be worth nothing, its not like you could trade your gold certificates in for actual gold, you know?

[former9thward]

23. The only ETF that does that is ZGLD which is sold on the Swiss exchange.

You can get the actual gold if you want. But of course you have to go to Switzerland. In terms of government collapse that is why it is important to own gold bullion if that is a concern. Certainly in a collapse paper dollars would be worth nothing also -- even if you could get them from a bank -- which is doubtful.

[Enrique]

25. credibility

[itsrobert]

31. Revealed, what's really at Fort Knox

I have a reliable source that will affirm that there is very little gold at Fort Knox. But contrary to some wacknuts, the Gold is not gone, but taken to vaults in the mountains in Nevada. Apparently in the 1960's while doing underground nuclear testing. the US found huge amount of Gold in Utah and Nevada. Enough Gold to collapse the gold values to almost as low as the price of copper. This is super top secret because if word or evidence would get out, it would collapse economies around the world. So don't repeat this or you may be visited by Secret Service Agents and taken away for reprogramming.