Gold is a Terrible Investment - According to Dave Ramsey

[Hare of Caerbannog]

All prepping that we talk about on this forum is pretty much assuming what Jack has covered about a thousand times in his podcast, that is to set priorities according to the disaster matrix. First we try to have preps for a week, then two weeks, then a month, etc. Assuming a personal emergency is the most likely to strike, we prepare for that first, then we prep for a family level emergency, then neighborhood level, then community level, etc, etc.

As has been stated on this thread over and over, gold is a long term storage of wealth. Gold holds its value over the long haul.

...so, assuming you have ALREADY been prepping and ALREADY paid down or paid off your debt and are ALREADY comfortable with your food storage, gold, among other investments is a way to protect wealth LONG TERM. It is compact, can be easily hidden, easily transported, universally recognized, durable, and has held its value for the last 6000 years that we know of. That's about 5900 years longer than any fiat paper money that has ever existed.

No post on this thread that I have read advocated "flashing around gold". Additionally if people are starving and you are "flashing around" an apple and are unable to protect yourself, you could get killed.

As for the great depression, it lasted from 1929 until roughly 1945. Who has 16 years of food in storage? Who has room for 16 years of food storage? My mother and father lived through the great depression because they grew their own food, not because they had 16 years of food preps.

No one on this thread is saying to buy gold and do nothing else.

Anyone not sure about the content and intent of this thread should read the first post.

[metaforge]

@RationalHusker - thanks for the great expanded analysis of the original post!  Very valuable as time averaged purchasing is more likely the way most of us invest rather than buying a large lump sum at some point and letting it ride.

Another main conclusion I draw from this is just legitimacy: that gold is a comparable place to put your wealth.  Always better than the DOW? No of course not.  But it's a legitimate peer that should be considered.  We seem to think so much of the gold bugs who say the DOW is garbage, buy gold, and wonder how accurate they are... but let's not forget that far outnumbering them are the "DOW bugs" of the mainstream investment industry who say gold is a useless barbaric relic, doesn't even pay interest/dividends, and that therefore the DOW is where it's at - the only game in town.

You analysis proves gold should be considered a 1st tier peer of the other places to park your wealth, not a bastard stepchild for kooks, crackpots, and conspiracy theorists as mainstream thinking would have us believe - and it proves Dave Ramsey wrong.

I really enjoyed this chart posted by APMEX, I think in it you can see the major economic storylines of the entire past decade.  It's too bad it doesn't show silver - if it did, we'd see silver up 6x over the past 10 years, compared with "only" 4.5x for gold.



PS - you can't eat bonds or shares of stock either.  

[Taylor3006]

I was not knocking gold, at all.  The point I was making was that food should be number one prep, in the case of actual EMERGENCY.
I have talked to a lot of oldtimers who nearly starved during the depression.  I asked them, if they had to do it over again, what would they do?  They said food was best way to prep and then ammunition.  Having and flashing around gold would get you robbed/killed .  If  it was an actual situation ,  many times worse than Katrina.   Of course I understand that fuel, gold and many things are important   , and should be considered if you are capable.  If you don't have a lot of resources.  Food can be used for barter .  Doctors have to eat too.   The only point I was trying to make is that Food is one barter item that everyone needs.   I guess I have heard too many starvation stories about eating dried peas for months .

Just the opposite here, listened to the stories my folks and grandparents went on about during the Depression. No one went hungry, my family were all country folk who raised and hunted for their food. No starvation, but everyone complained that there was no money and no jobs to make any money. Ya couldn't see the doctor or dentist, you had to make due with old tires on the vehicles, getting car parts cost too much,  and replacing something or buying something new was almost unheard of. My grandmother complained most about getting clothing and shoes for her children. My father actually complained about food, not the lack of it but the lack of variety and the homemade clothing they had to wear. They ate venison, goat, and fish mostly. Chickens where considered a special meal and having beef for dinner was rarely seen (this was the hill country). In season you would eat whatever was available ALL THE TIME until it was all put up or gone. My grandpa also said about the only thing brand new that would ever get purchased was shoes, everything else was "preowned". He also said the "normal" people that did best (where he was) was the women who could sew decent looking clothing and the men who reload ammo.

[RationalHusker]

@metaforge:

I think you understand and articulated my point very well (in fact, we even used the same chart in trying to make this point to others).  Lots of people still trumpet stocks and dismiss metals (and most commodities) as relics and underperforming stock indices.  Case in point - check out the article my dad's financial advisor gave him when my father told him that I (his son) encouraged him to buy some gold/silver. 

Most humorous to me is that fact that it was written in Sep. 2007.  Gold and silver have so dramatically outperformed stocks since it's publication that this guy should have no credibility whatsoever (but probably manages hundreds of peoples savings).  Just another example of an "expert" being blinded by mainstream propaganda. 

Here is my response to my father after I read this article (I apologize for the sloppy nature of my response - it was a weekday and I had other things to do).


Article:  http://www.fool.com/investing/mutual-funds/2007/09/28/gold-vs-the-sp-500.aspx

My response:

I would like to ask the author of this article several questions:

1.  Why choose a 200 year time-frame?  Not even people on the Hallelujah diet live 200 years.

2.  Hmmm..I wonder why he would choose 2001 as last year in the comparison? Did you know that the S&P 500 Index was at 1,350 in January of 2001, and today it's at 1,276?  So in the last 10 years it's had a negative 5.5% return.  During the same 10-year span, gold has gone from $265 per ounce to over $1,400 per ounce.  The author purposely chose 2001 as the end of his 200 year period so as to ignore the last 10 years, where stocks have done horrible and gold has done extremely well.

3.  Why did he/she not mention that our money actually used to be gold or silver (i.e., not worthless paper)?  Even our paper money was backed by gold until 1971.  So before 1971, holding gold or silver was more similar to holding cash, so of course there wasn't as much gain as other investments.

Given the fact that we left the gold standard in 1971, the last 30-40 years would be a better time frame for a comparison than 200 years.  Look at the pictures I've attached.

The attachment titled "gold vs dollar since 2001" shows that since 2001, gold has gone up 125%, while the value of a dollar has declined 30%.


The attachment titled "SP and DOW vs. dollar since 2001" shows that while gold has gone up 125%, the S&P and DOW have risen a modest 15%.  But remember, the dollar has decreased 30% during that time, so if you invested $1 in the S&P in 2001, today you'd have $1.15, but it would only buy you what $0.85 would have bought you in 2001.  If you bought $1 worth of gold in 2001, today you'd have $2.25, and it would buy you what $1.58 would have bought in 2001.


The attachment called "Performance since 1977" shows the inflation-adjusted increase in four investments since 1977 (gold, real estate, oil, and the NASDAQ).  The NASDAQ is a stock index similar to the DOW and S&P.  Guess what?  From 1997 to today, gold has outpeformed oil, real estate, and stocks.  That's a 33-year period, which I would say is a pretty long-term period.  (Look familiar, metaforge?)


I'm not saying that you should put all your money in gold or silver.  But you have to understand that when people write articles like this, it's likely that they sell mutual funds and are cherry-picking only the statistics that say what they want you to believe.  Some people that sell gold would do the same thing.  Bottom line is this:  Do you trust the stock market today?  It's much different than it was in 1970, with most of the trading being done by computer programs that manipulate stock prices and screw the little guy that can't use programs like that.  Second, do you trust your government and it's ability to not spend more than it takes in?  Do you think that the dollar will continue to loose value or hold or increase in value?  If you don't want to buy any more gold or silver, that's OK.  If you want to sell what you have, I'll buy a little back from you over time - I'd buy it all from you today if I had the money.  But I do think you need to have at least 20% of your cash holdings in gold and silver.  There are ways to buy it and have it stored somewhere else.  Or you can put some in a safe deposit box. 

Finally, note that the article was published on September 28, 2007.  The S&P500 index on that date was 1,526.75.  Today it is 1,275.61 (a loss of 16.4%).

On September 28, 2007 gold was $740 an ounce.  Today it is $1,375 (a gain of 186%).
On September 28, 2007 silver was $13.60 an ounce.  Today it is $29.15 (a gain of 214%).

So, if you had read this article the day it came out and followed his advice, you would have lost 16.4% of your money, while somebody that bought gold or silver would have made 186%-214%. 

[chrisdfw]

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.

[RationalHusker]

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.

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.

Wall Street Journal: China Is Now Top Gold Bug

...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. ...

[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]

the market can remain irrational longer than you can remain solvent.

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

[Dentoro]

In some cases up to 75 tons of rock have to be moved and pulverized for 1 oz gold. EAsy gold is gone.  Some mines are way deep now and have low grade ore.  What does this mean?  It takes a lot of work/ energy to get.  Somebody has to work and it will never lose all value. Yes we need currency to survive.  BUT...  Currency is created by button pushing. As Celente says...not worth the digital paper it's not printed on anymore.  In 3-7% of the total time....thousands and millions can be printed by cutting down a tree.  So the store of value in gold is real...it can't be argued.  As for investment....case can be argued.  But as of the last six years, I'd rather had the gold than the 0.025% interest on a CD.  Gold has trounced that in that time.  As far as stocks, who really knows?  We know gold is pushed down while stock is floated by FEDRES.  IF WE HAD KNOWN BOTH WERE GOING TO BE MANUPLATED FOR SO LONG....stocks would have been a no brainer.  But those of us who invested in Gold in 1999 -2000 are doing ok still, and will make back any gains lost when the market does go bust. 

[ResidentCelt]

But those who bought gold in 2011 or 2012 are doing horribly... My rifle I bought in 2012 is worth a bit more than I paid for it. My gold is worth much less. Which was the better investment?

[bigbear]

In some cases up to 75 tons of rock have to be moved and pulverized for 1 oz gold. EAsy gold is gone.  Some mines are way deep now and have low grade ore.  What does this mean?  It takes a lot of work/ energy to get.  Somebody has to work and it will never lose all value. Yes we need currency to survive.  BUT...  Currency is created by button pushing. As Celente says...not worth the digital paper it's not printed on anymore.  In 3-7% of the total time....thousands and millions can be printed by cutting down a tree.  So the store of value in gold is real...it can't be argued.

Just because someone works for it does not give it value.  Someone has to want the output of that work for some reason to give it value.

[Dentoro]

Resident Celt, I feel your pain as im sitting on a mountain of $23 silver.  But I also bought @ 3, 5,6,9,11 and 14 and 18.  However I still think it is better than a government ran 401 that we all know they will be taking. 

Bigbear you are right, to a point, but if it is not coveted or valued, why do so many work so hard to get it and why do governments keep so much of it?

[endurance]

Resident Celt, I feel your pain as im sitting on a mountain of $23 silver.  But I also bought @ 3, 5,6,9,11 and 14 and 18.  However I still think it is better than a government ran 401 that we all know they will be taking. 

Bigbear you are right, to a point, but if it is not coveted or valued, why do so many work so hard to get it and why do governments keep so much of it?

What countries keep silver reserves?

[bigbear]

Bigbear you are right, to a point, but if it is not coveted or valued, why do so many work so hard to get it and why do governments keep so much of it?

It is valued.  It's valued more or less every day.  It's valued like anything you can trade your work for (or whatever you're given for your work).  People are working hard to get to it because there's a market for it.  Just like the supermarket or stock market, there's a market for gold.

To your point though, the market/consumers/investors allows companies to employ lots of people and still make it profitable for companies.

[Carl]

Gold and silver are a lot like measuring peoples height with a yardstick
people are taller and shorter ,but the yardstick remains the same.
Gold and silver are that yardstick.

[R_Morgan]

If you goal is to "make" money as an investment then yes its not the best.  You aren't going to see 8% returns everyear that you aim for with traditional investments in stocks, bonds etc. So dave ramsey isn't wrong but he's not right either. As jack had mentioned he also told people to buy into housing as it was going down since "its on sale". Dave has great advice for getting rid of debt and budgeting. For those two things I recommend him 100%. For "investing" and wealth preservation not so much.  And my two cents are. When you buy metals you should never even check the prices to see how much you've "made". Only time is if you know you'll need to sell it because you want to buy house/land etc and want to hit higher price than lower, etc. Other than that stick it away

[ResidentCelt]

Gold and silver are a lot like measuring peoples height with a yardstick
people are taller and shorter ,but the yardstick remains the same.
Gold and silver are that yardstick.

Kinda. There are industrial uses for both, and that affects the actual real value of both.

[David in MN]

I think what people miss is that precious metals, being a "store of wealth", necessitate "wealth". In less gentle terms, people with no money have no wealth to preserve. It makes no sense to scrimp on food just to get a small piece of something shiny in the closet. On the other hand, it is nice to have a little metal to offset the fat tail risk of being 100% dollar denominated (supposing you have the capital to invest).

I use metals 2 ways:

Every year in August I rebalance my portfolios. I transfer a portion of my high-risk trading gains into low risk vehicles like gold, silver, platinum, bonds, CDs, etc. (this is called a barbell strategy). I know there is still some risk there but far less than my usual routine of betting on biotech startups, options trading, rare venture capital projects, forex, Bitcoin, and commodities.

The second method may disappoint... In a lot of ways, metals aren't an investment. I have no intention of ever selling or using them (I do try to use silver to barter from time to time but it's more of a political statement). If my goal is to fill a safe with metals (it is) and never sell, it's not really an investment. And it's sure not putting money in my pocket like a dividend. It becomes money that disappeared.

[spud]

I think of metals not as an investment but a means of currency, that is, back up currency when current currency loses fancy and/or value.  Jack talks about value of a country's economy in terms of what it produces and that is it's value.  I kinda agree but also disagree because currencies are traded and your coconuts that are exported have the same value but could be traded in more or less value on whatever your currency is traded at or manipulated. 

[DWSDVSE]

I get Nick Murray's newsletter at work and his March Newsletter has it's main article titled "The Idiocy of Gold." Wow, the man hates gold and thinks that only idiots have it. Makes Ramsey and the old man from Omaha look like regular Gold Bugs. His terms prevent any quoting of the article, and it's really not worth quoting, but it just shows the violent hatred for gold that some advisors have.

I just don't get it. Such sweeping asset class rejection seems the heights of irrationality.

/rant off