Finance and Economics > Economic News, the Global Economy and all Things Monetary

Gold is a Terrible Investment - According to Dave Ramsey

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RationalHusker:

--- Quote from: chrisdfw on January 10, 2011, 07:37:00 PM ---the market can remain irrational longer than you can remain solvent.

Many thought the nasdaq was overpriced at 3000 or so in the late 90;s... they were right, but it went to 5000 before it
crashed back down, so if you bet short at 3000 on the way up, you were right and maybe bankrupt.

All the discussion about overpriced, underpriced is very futile without a crystal ball.

--- End quote ---

I agree.  I'm not arguing for gold being undervalued.  I'm arguing that it is not a "terrible investmestment" as Dave Ramsey has said.

Crash:
I didn't get to read all the posts, but wanted to mention the fact silver is way undervalued right now. It's thought that JP Morgan is manipulating the silver prices through short positions. Basically, what they're doing is selling paper saying you own silver they don't have, driving the price down due to "supply and demand". Problem is, the supply isn't there. When the SHTF on this thing, silver will spike to where it should be.

The ratio of silver to gold should be around 16:1, meaning you should be able to buy 1 oz of gold for 16 oz of silver. Right now it's 46.5:1 or 46.5 oz of silver to buy 1 oz gold. Given that figure, I'm sticking with silver and copper, as copper is outperforming both right now. Gold is nice, and it makes a good diversification metal, but we have to be realistic. Besides, who can afford $1350 an oz for gold when silver is at $29 and should be somewhere near $80 an oz?

Copper is even better right now. Remember what happened during WWII? Copper pennies were discontinued in 1943 and they were made from zinc due to a shortage of copper. That scenario isn't out of the question today either. Pennies made after 1981 are zinc with copper plating. BTW, did you know there is the equivalent of 435 US pennies' worth (1982 and newer) of copper in each TSP copper round? (plug for the Gear Shop) Kinda makes the TSP rounds inexpensive at $1.35 each when they have $4.35 in copper in them, doesn't it?

BTW, if anyone finds a real 1943 copper penny? They're worth a LOT. Maybe over $100,000. A few did make it out.

Mr. Bill:
Gold is a wonderful investment - according to the Chinese private sector. 8)

Wall Street Journal: China Is Now Top Gold Bug

--- Quote ---...China's investment demand for gold more than doubled to 90.9 metric tons in the first three months of the year, outpacing India's modest rise to 85.6 tons, the World Gold Council said in its quarterly report on Thursday. China now accounts for 25% of gold investment demand, compared with India's 23%.

The report underscores the rising appetite for gold among the growing middle-class in China. Fears of the country's soaring inflation, as well as a search for new investments, is luring investors to gold, and marketing of the precious metal has also increased in recent months. ...

Thursday's report covers only private-sector demand, but one wild card for the world's gold market is how much gold China has been adding to its foreign reserves. ...
--- End quote ---

XtraBright:
Hello.

I think the mistake people make when it comes to gold is actually: seeing it as an investment that has "return"

Which is not the case in the long run.

But gold did very well as storage of value and i can explain this with a personal example:

While doing some renovations i found a dozen "20 Kronen" bills printed in 1917.
It´s value at that time in "stuff one Krone buys" would be ap. 4Euros or ap. 5$ today.

The Krone was a gold-backed currency (until some years before it´s end) and coins were in gold and silver.

Here is a picture of one (wikipedia commons, hosted on skitch.com)


This note was actually a request to get "metal" at anytime or as the translated text says:

"The austrian-hungarian bank pays against this bill at her seats in vienna and budapest immediately 20 Kronen in official metal coin"

There was also a gold 20 Kronen coin.

And now comes the interesting part:

The Krone was removed from it´s gold cover, money was created (printed) and just 6 years later (1924) every Krone was devalued by 1/10.000 !

10.000 Kronen became 1 Schilling.

This Schilling was destroyed in the Great Depression and was converted (at loss in value) to "Reichsmark"

Which got pretty worthless (for reasons well known) and was converted back to Schilling.

Which was converted at an (unofficial loss) of 30% to Euros in 2002 and who is a currency in deep troubles today.

Short: Those paper Kronen are worthless, a dozen of them is traded (in good condition) on ebay for 1 Euro.

So 200 Kronen (that were worth 800 Euros at their time) only buy 1 Euro today (if there is a collector bidding..)

If my ancestors had their 200 Kronen in 20 Kronen coins (made out of gold)

Each coin (nominal 20 Kronen = 80 Euros) trades for 230Euros today (Buy: 249 Sell: 233)

Even when gold was low this 20 Kronen gold coin bought pretty much the same stuff in value as it did back in 1917.

And today it´s value in Euros (230) is even almost 3 times the value it bought in 1917.

Great investment ?

200% in almost a hundred years ?

Not really.

But store of value without counterparty risks (and i consider stocks paper with counterparty risk) ?

Absolutely.

Not to mention that at anytime in this hundred years the 20 Kronen gold coins could buy stuff (and in some cases freedom ..) , no matter what was the actual currency, no matter the value of the actual currency and no matter what kind of government under.

Well within 100 years the 20 Kronen coin has survived so far:

The Emperor and the assassination of his follower.
WW I
The collapse of the former state and it´s division into two countries (austria / hungary)
National fascism and civil war
Greater depression
Anarchy and civil war
Dictatorship
WW II
Russian occupation
Democracy (and it´s swings from socialist to market oriented, and back and forth)
Energy crisis
Diverse collapses of the stock markets
The Collapse of the former eastern block.
And so far the EUSSR (and i bet it will outlive that too while still holding it´s value)

Not too bad for a piece of metal which has no use except make Cinch-connectors and women like shiny  ;)


ResidentCelt:

--- Quote from: chrisdfw on January 10, 2011, 07:37:00 PM ---the market can remain irrational longer than you can remain solvent.

--- End quote ---

Someone has read Soros... Good book by the way. Explains a lot about market behavior.

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