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I heard this on a radio commercial sponsored by one of those outfits selling gold. (Duh.)
It makes sense why a person might want to hedge against a decline in the purchasing power of their dollars, but why would someone want to hedge against an increase in the purchasing power of their dollars?
because its not just about america. an increase in purchasing power in the dollar is a decrease in the rest of the world when translated to their currancies.
Sounds good but is false. Gold was $800 in 1981 and is $1,600-1,700 now. Thus, in 30 years it doubled.
In that same time, the S&P500 went from 167 to 1200, roughly 8 times. Which is the better hedge on inflation? Also, the CPI in 1980 was about 90 and is now 230. Gold didn't even keep up with inflation.
gold was mis-priced back then. it should never have hit that level and did so for many reasons but that was not its true value back then in those days. it was a pricing error.
its just as much a pricing error as nasdaq was hitting 5000. eventually like water things roll back to their correct levels again.
we would never use the dot com era as a benchmark to judge whether a company is fairly valued today or not. we know that price back then was whacked out and should never have been.
just because something has a pricing error doesnt mean that error is the bench mark forever.
gold was also off the radar as a serious asset class for decades. there were to many other ways to bet against the markets and gold fell off the radar.
since its been back on the radar its been performing just as it should as a competitor to the dollar.
i wouldnt judge the performance of gold from decades back as an indicator of how it will react and perform going forward.
gold was mis-priced back then. it should never have hit that level and did so for many reasons but that was not its true value back then in those days. it was a pricing error.
Ok fine. But gold dropped in price for the next few decades to a low of $400. But even at $400, it still didn't match the performance of stocks.
no investment should be left to just sit and do nothing, thats not a strategy or a plan....
but suppose you had a nice balanced portfolio of an s&p 500 fund ,cash , gold and long term treasuries and you had equal amounts in each.
lets also assume all you did is rebalance it once a year . lets also suppose you bought the gold on that day that gold hit almost 1000 bucks along with all the other components.. you couldnt have had worse timing to purchase your gold.
well do you know today just by rebalancing your portfolio annually back to the same 25% in each the annual average return on the gold has beaten the annual return on equities over that long term time frame.
9.85% for gold compounded annual average return vs 9.14 for the s&p 500 fund. its all about the strategy and the plan and how an asset class is utilized. buying one asset class is not a plan, a strategy or even an investment. ITS A SPECULATION in my book filled with a strategy that consists of I HOPE..
Last edited by mathjak107; 12-14-2011 at 04:33 PM..
I heard this on a radio commercial sponsored by one of those outfits selling gold. (Duh.)
It makes sense why a person might want to hedge against a decline in the purchasing power of their dollars, but why would someone want to hedge against an increase in the purchasing power of their dollars?
There is a commercial here that says someting like "in the history of the world the value of gold has nver been zero!" or something like that...
I've never understood gold as either a long term investment or short term (speculating) -
And there's a good reason to stay away from gold -- its market is driven by the notions of heterodox players being pushed around by self-serving mystery-men and obfuscating profiteers. There are various much cleaner and more orderly markets in which to place one's bets.
Any time someone is selling a specific financial product or solution on mass market radio, it's a sign that demand for it has saturated and current owners of it need a new group of greater fools to jump onto it in order to preserve its value.
All the cool kids seem to be buying Swiss francs these days.
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