29 September 2009

The Case for Buying Gold

As US unemployment worsens, the mortgage industry sets for another round of defaults, US government debt explodes, and the Obama / Pelosi agenda reaches its tentacles ever more deeply into a sick US economy, you may be wondering if there is such a thing as a safe haven for any surplus wealth you may possess.

Is Gold a Reasonable Investment? is an extensive look at the question. The article answers the question from multiple perspectives, and contains a generous variety of links to clarify each point. Also included are multiple helpful graphs and charts.

The value of the US dollar will continue to drop over time, as the US Federal Reserve and the Obama Administration continue to monetize US government debt. When inflation gains more traction, the fiat currency's loss of value will accelerate.

Al Fin believes that everyone who can should have both gold and silver in multiple forms: coin, bullion, and investment in precious metal enterprises.

More: If you believe the worst of the recession is behind us, perhaps a healthy dose of Financial Armageddon will lead you to re-consider.

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Blogger yamahaeleven said...

Now is the time to start selling your pile of gold when you see random non-experts advising people to buy! This is a classic indicator for tops of bubbles and the bottom of the valleys - sell your stocks when your neighbor and grandma are giving stock buying advise, buy them when they start advising you to buy precious metals.

Have you ever made a profit investing in precious metals?

Tuesday, 29 September, 2009  
Blogger al fin said...

Yes indeed. Have you?

Tuesday, 29 September, 2009  
Blogger read it said...

Boston University econ. prof. Larry Kotlikoff advised buying gold in his 2004 book, The Coming Generational Storm, which he wrote after the treasury dept hired him and Smetters and Gokhale to audit Social Security and Medicare. He also recounted a speech by Ben Bernanke in 2003 in which Ben promised to create inflation in order to lessen the impact of gov't debt obligations.

Gold isn't an investment per se. My son is 11 and likes to check stock and gold and silver prices for fun. I always tell him that a rise is the gold price is really just a reflection of the loss of value of the dollar. It isn't a perfect indicator but the secular trend of gold vs. dollar is gold up, dollar down.

Recently gold traders have been taking delivery rather than just continuing to trade. I think it was maybe 6 months ago, maybe 4, anyway, I don't remember it exactly but Deutsche Bank ended up having to deliver on some gold holdings that they thought the investors were going to just resell rather than take delivery. They had to move pretty fast and observers were surprised to see them actually make it. Similarly the IMF recently sold 12.5% of its gold reserves, surprising some gold market watchers. I am no expert so, to me, gold is a hedge more than an investment.

Tuesday, 29 September, 2009  
Blogger yamahaeleven said...

No, I've never invested in precious metals, so I'm no more valid as an oracle than anyone else, plus one point for Al.

I agree gold can be used as a hedge. I just don't think it is a good idea to put much of one's net worth into it, I've know some who were burned big time buying gold and silver when everyone thought the dollar would collapse, the early 1980's, for example.

Tuesday, 29 September, 2009  
Blogger al fin said...

Fine, if it makes you feel better to call it a hedge, then seriously consider hedging. ;-)

Yes, there was the big silver bubble way back when, courtesy of the Hunt bros.

The idea is not to put all or most of your wealth into precious metals. The idea is to put some of your wealth there, so that if things go totally to gehenna, you will at least have something to work with.

We are still better off than in the Jimmy Carter created malaise, but give Obama time. Once he gets the Pelosi congress whipped into shape, he can bring in a tsunami of hope and change.

Tuesday, 29 September, 2009  
Blogger read it said...

Pandora let 'hope' out of the box. Did she also let out 'change'?

Anyway, the idea in 1980 that the dollar would collapse is somewhat different. It was based on different assumptions. I have no idea if the dollar will collapse, but there are now legitimate reasons to believe that it could weaken significantly against gold. History has shown the weakness of fiat currencies, but that certainly doesn't mean collapse is imminent.

Tuesday, 29 September, 2009  

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