What's the incentive for converting currency to gold or silver?

Someone I know was trying to educate people on the merits of converting dollars to gold or silver. He's been going on about this for over 5 years.

I didn't make any comments at the time, because I like to inform myself first. I looked at some charts of the values of these metals over the past few years-

Gold went up around 2012 for a bit, but then it dropped dramatically. It is slowly making its way back up to 2011 levels.

Silver went up in 2012, but has dropped sharply and has not recovered since.

Conclusion: had I invested in silver in 2011 or 2012, I would have less money now.

I get that investing in markets has its risks, but the idea that our currency is at risk or that we should convert it seems a little absurd.

The car I bought brand new 5 years ago costs more or less the same now.

My rent has only gone up 5% total since I moved here 5 years ago..

My point is the value of the dollar in real expense terms has more or less stayed the same.

Am I missing something?

 

Yes you are missing the point.

The price of gold cannot easily be effected by your governments action or lack of it.

?????!!!??!??!??!?

 

Gold went up for something like 10 years straight, and not a small amount either. No surprise that it had a pullback. I wouldn't be surprised if it went down even more.

As far as the prices you're talking about....per the government's numbers the dollar since 2001 has lost over 25% of it's value. The government understates its numbers since the CPI is used to calculate social security payments and it's a major component of calculating GDP. So it's lost a lot more than that.

Gold is not the only thing you could buy though. There are a lot of things you could do. It's just important to notice that that debasement is an ongoing thing and not some "conspiracy theory".

 

The euro has lost a lot of its value in the past 5 years as well. I guess we are all equally screwed.

 

inflation and the fear of the apocalypse

 

All commodities are priced in the local currency, not just gold and silver. When the dollar goes down, for example, the prices of oil and gas go up. That makes commodities a good store of value when your local currency is dropping.

The problem is, how do you safely and conveniently store oil and gas? For a commodity to make a good store of value, it has to be rare, safe to handle and portable. Rarity ensures that you can store a lot of value in a small mass. If you wanted to store $1000 in copper, well copper is like $3 per pound I think. So you would need more than 300 pounds of copper. Or you could buy less than an ounce of gold. You get my point.

 

On the other hand Gold is an asset that does not bring any income, so there is no cash flow to discount to arrive at a fair value. You also need to insure it, store it, so gold has negative income.

Paper gold is different, obviously, but I find that paper gold kind of defies the very merit of owning gold, lol.

Take a look at gold's evolution since 2007......It might just be in the top 3 most volatile asset class out there, possibly because its value is so subjective.

IMO the best possible asset class for long-term investing and inflation protection is a diversified portfolio of blue chips with a steady, unbroaken stream of dividends.

Of course, they are not hipster enough, and Zero Hedge predicts the end of the world every day, so many people won't admit that.

 

You think Im going to invest in IBM when the world is going to be swallowed by hellfire tomorrow???

 

It's not about investment, you misunderstand. It's about the opposite, the reduction of risk to better protect what one has.

 

Your friend probably listens to Glen Beck, who will tell you that the government is going to collapse any moment, the dollar will experience "Zimbabwe" levels of inflation, and your best bet to protect your assets is to buy gold.

Never mind that Goldline was a BIG sponsor of his shows. No conflict of interest there.

 

What about Chick-fil-a?

 

I could name a couple of things that fit the description of "no cash flow" and "negative income". Let's say...a house? Or most stocks since "blue chips" barely pay any dividends, and that's if they pay dividends at all. Not to mention you're a second class citizen to bondholders and preferred stock holders in case something happens to the company. Major corporations go bankrupt all the time.

I always find it funny when people bash gold, since the typical arguments against gold work against cash too. Cash is worse than gold....that's why you hold gold. I don't know how many government economists and fed chairman have to have a speech where they state that their main goal is to make cash as unattractive as possible. That's the whole point of "inflation targets", they want to make cash a terrible investment to get you into other assets.

Of course the government doesn't want you to buy gold, they want you to buy stocks, real estate, etc.

 

A house is a special case, since you need to factor in the fact that you would pay rent if you didn't own a house. So, owning a home is actually cash producing in many cases if you make an net present value of the decision of owning vs. renting.

Many blue chips do pay a dividend of say, around 2%. That's low, but in Germany 10 year government bonds' yields are negative.

In a well diversified portfolio of stocks, a bankruptcy or two won't kill you. Besides, if you have any knowledge in analysing corporations, you can pick pretty solid companies in pretty solid industries that most likely won't go bankrupt in the next 30 years. Monsters like Johnson & Johnson, GE, Daimler, BMW, etc. aren't going anywhere, dude.

Lastly, i don't hold cash, nor would I recommend it as an investment.

 

Oh and just to clarify, i do believe that gold does have a place in a well-diversified portfolio.

But putting more than say, 20% of one's portfolio in gold is reckless shit, regardless of the last conspiracy theory about currency wars and the monetisation of chinese-held debt and wwaaaaaaaahhhhhh wah wah.

 

Yeah well only a well diversified portfolio can be a defensive position. If you put everything in gold, you are not diversified.

 

You think that the world is going down tomorrow ? Maybe gold is a solid investment, then, maybe not. But surely you can't know when that happens and if it will happen at all.

Gold can have bear markets that last many, many years.

 

I've always figured that if the doomsday scenario ever happened, gold would actually be a pretty bad investment compared to a bunker stocked with firearms and canned beans.

 

"saves money" is not the same as cash producing. A house is not an income producing asset, it's actually more like a liability. You have to factor the upfront realtor and bank origination fees, insurance, taxes, maintenance, interest on the debt, etc. Homes cost money just like renting costs money. If it was such a great investment Americans would have savings instead of a bunch of debt.

Corporations go bankrupt all the time. Look at GM, American Motors, Studebaker, De Soto, Plymouth (that's just naming car companies). And keep in mind, for that "stability" you get very low yield. 2% is just not cutting it when inflation is giving you a negative yield. Why do you think so many state pensions and retirement funds are always caught up in investment scandals? They're looking for yield! Puerto Rico is a good example.

Personally I think most, if not all major investment schemes are scams. Just my opinion. When you crunch the numbers it's just impossible to get rich or even relatively wealthy, and most of the time you're making a manager, bank, or realtor rich in the process. I think the formula to get rich never changed - real income producing assets that grow independent of your time. I.e. a business that you can scale.

 

Depends on how bad the doomsday scenario. Worst case scenario....nothing will save you.

 

Exactly. People who proclaim the necessities of gold as a barter currency in these insane scenarios overlook that while gold and jewels certainly are worth more than a collapsed currency, they still aren't worth jack shit. People were handing over diamonds and rubies just to get snuck out of nazi controlled areas during WWII. Granted, you're rigging the value of life, but my point is that those jewels and precious metals will be spent very quickly in such a situation. Essentially, nothing would really hold any value.