Is Gold worth owning?

[eytonxav]

We recently inherited some US gold coins that were appraised at ~ $16K, however, the value is more determined by rarity than by the value of the gold content. We plan to keep the coins as a collectible or diversifying store of value. Also, have a small allocation to GLD in my portfolio, probably 1.5% at most.

Have other assets in firearms and lead in case SHTF.

 

[imoldernu]

Not specifically, or ONLY for gold, some interesting advice extracted from Bank of America guidance.

It’s Time to Hold More Cash and Buy Gold - GoldCore Gold Bullion Dealer

Gold is a regarded as a hedge against market turbulence by Bank of America who, in a note to clients, advised holding gold and paper currency at this time.

Bloomberg report that Bank of America Merrill Lynch describe the markets as being in a “Twilight Zone” – the zone between the end of QE and the Fed beginning to raise rates to try to bring normality back into the markets.

The note highlights two problems with raising rates which are prolonging this sojourn in the Twilight Zone. The first is that the real economy in the U.S. is not currently strong enough to withstand a rise in interest rates.

The second is that raising rates could cause a shock to the markets and the economy as the practically free money juicing the markets comes at a more realistic cost and some government, corporate and household debts become unserviceable.

For these reasons, Bank of America believe that the Fed is far from taking action to return the markets to normality and “the investment backdrop will likely continue to be cursed by mediocre returns, volatile trading rotation, correlation breakdowns and flash crashes.”

To deal with this they advocate adding gold to one’s portfolio along with higher levels of cash. Citing factors such as liquidity, profits, technological disruption, regulation, and income inequality they say there exists a potential for a “cleansing drop in asset prices.”

more.....

 

[Running_Man]

Gold as a proven winner?

It was for five short years in the late 70s and early 80s. Then a big fat loser until 2002. The last ten years it was back in business. Recently, not so much.

Gold Price History

and in real terms:
Historical Gold and Silver Prices - 100 Year Chart | MacroTrends

All of that gold is still in inventory. And some of its value is cultural buying by Indians (dowry) and Chinese.

Might as well invest in lottery tickets and hope you hit it big (my not so humble opinion).

According to the chart you linked unless the gold you hold was purchased between July 1979 and August 1980 or after Dec 2009 you are presently ahead on an inflation basis on your purchase of gold. Anyone holding on to currency would be far behind. There are no lottery tickets older than one year that hold any value.

 

[unno2002]

[FONT=&quot]Regarding the article at the link, it seems to indicate there is up to 228 claims for every ounce of gold available... [/FONT]

[FONT=&quot]http://www.zerohedge.com/news/2015-09-09/something-just-snapped-comex[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]Given the whopping progressive currency creation in recent years, I found it surprising that gold and silver did not skyrocket. I guess the situation at the COMEX sort of explains it. It looks like most investors / speculators who buy some gold, don’t want to actually have the gold delivered to them, they prefer to just have it on the books in their account, with the gold “safely” held somewhere else. That way they can buy/sell with computer clicks, no shipping or assay (purification verification) involved. [/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]A problem is going to come up though if we reach a point where “too many” people decide they want their physical gold. Only the first few are likely to actually receive the gold they think they own. [/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]How many? At a 228 : 1 ratio, if roughly 8/10% (eight tenths of one percent) of gold “owners” wanted delivery, the supply would be gone. I suspect that well before that,
[/FONT]
[FONT=&quot]“Someone” would step in and in some manner halt the outflow.[/FONT]
[FONT=&quot]
If you can’t hold it in your hand, you don’t own it[/FONT]

 

[prudent_one]

I don't know what's the general buzz is out there, but three relatives approached me over the holiday weekend and asked if I would get them some gold. They know I have connections to get it at a good price but all of a sudden this big desire to get some gold? And these aren't people who follow markets.

 

[6miths]

My pretty...

 

[Senator]

Buying physical gold is not worth it. You have a very high transaction cost, and then storage fees. When you sell, another high transaction cost.

We are headed for deflation, not inflation. The entire world cannot be in deflation, and the USA in inflation. Regardless of the money printed, top line revenue growth of most companies is slowing. Commodities are some of the lowest prices ever. Wages are falling.

If you really want gold, buy GLD as an ETF as a hedge, not an investment. Limit your exposure.

 

[Running_Man]

40 Bucks to $10 Million: What Warren Buffett Can Teach You - DailyFinance

She should had bought 40 Bucks of KO in 1919 and she would end up with 11 Million today .

I wonder what is value of 40 dollars of Gold from 1919. Is it 5000 bucks or 3000? Looking at some charts on internet looks to me like about 3000 bucks. And if you look at inflation from 1919 till today it very well may be that 40 bucks of gold from 1919 is worth just about 40 bucks in 1919 dollars today So one earned no real money in it.

But lets say we are not that smart. So we put money into S&P 500 Index. Well feed this into historical returns calculator and get ready for pleasant surprises.

S&P 500 Return Calculator - Don't Quit Your Day Job...

40 bucks in 1919 is 2 ounces of gold worth about $2,300 There was no way to invest in the S&P500 back in 1919. There was no index funds in 1919 and most investment funds went belly up in 1929. This invest in KO is not what people were investing in, it is what Warren Buffet states to make himself look good because he has held it for a long long time, however he has not done people any favors in getting them to buy KO as he continually touts it from 1999, the stock has paid dividends and that is about it. Since it was a new unknown issue in 1919 is Warren actually advocating today people should put $3,000 (6% of annual income) into every new issue on the NYSE in hopes by 2199 will have equivalent of 10 million for heirs? How many new issues should be invested in 273 came out in 2014 to invest the equivalent of $40 in 1919 in every new issue would require $673,00 should I plan on that each year as an investment plan? Or just pick one and hope it's a winner? Popular in 1919 was General Motors, Pierce Arrow, Stutz, Texaco, Pennsylvania Railroad and Central Leather. Stutz and Pierce being two new stocks in the upcoming auto industry (didn't quite make it). Some stocks would have gotten you rich many went belly up.

It is always nice to be able to pick your investments 90 years after the fact as Warren does. Charlie Munger does a nice job selecting stocks on an ongoing basis and has an eye for long term potential.

Gold is really just cash hedge that holds it's value against inflation long term with major fluctuations. It has a real purpose in a portfolio, but yes owning it probably lessens the chance of maximum wealth as it is a defensive asset not an offensive one.

 

[Koolau]

40 bucks in 1919 is 2 ounces of gold worth about $2,300 There was no way to invest in the S&P500 back in 1919. There was no index funds in 1919 and most investment funds went belly up in 1929. This invest in KO is not what people were investing in, it is what Warren Buffet states to make himself look good because he has held it for a long long time, however he has not done people any favors in getting them to buy KO as he continually touts it from 1999, the stock has paid dividends and that is about it. Since it was a new unknown issue in 1919 is Warren actually advocating today people should put $3,000 (6% of annual income) into every new issue on the NYSE in hopes by 2199 will have equivalent of 10 million for heirs? How many new issues should be invested in 273 came out in 2014 to invest the equivalent of $40 in 1919 in every new issue would require $673,00 should I plan on that each year as an investment plan? Or just pick one and hope it's a winner? Popular in 1919 was General Motors, Pierce Arrow, Stutz, Texaco, Pennsylvania Railroad and Central Leather. Stutz and Pierce being two new stocks in the upcoming auto industry (didn't quite make it). Some stocks would have gotten you rich many went belly up.

It is always nice to be able to pick your investments 90 years after the fact as Warren does. Charlie Munger does a nice job selecting stocks on an ongoing basis and has an eye for long term potential.

Gold is really just cash hedge that holds it's value against inflation long term with major fluctuations. It has a real purpose in a portfolio, but yes owning it probably lessens the chance of maximum wealth as it is a defensive asset not an offensive one.

I think your points are well taken, Running_Man. It's easy to go back and cherry pick a winner or two - hindsight is 20-20 and we all can point to one of our "winners" (but somehow we forget our losers.) One of the "selling points" for gold is that it simply retains its "value" (long-term, of course.) Perhaps a better reason to hold Au is that small amounts tend to smooth a portfolio when everything else seems correlated nearly 1:1. As always, investing is a very personal decision for all of us so YMMV.

 

[mathjak107]

If you bought gold the first year you could legally own it in 1975 at 175.00 an ounce the same money in just a 1 month t-bill rolled over is worth more today 40 years later.equitys beat it by about 15x

 

[mathjak107]

here are the results of owning that 1 ounce of gold since 1975 , the first year to legally buy and trade it short of collectible's which by the way turned out to be the worst place to put money so far .

gold 175.00 an ounce in 1975 is today worth 1130.00

t-bills rolled over 1206.00

short term bonds 2175.00

60/40 18,600.oo

global stocks 63,995.00


so even trying to protect against inflation it has failed to do better than what it claims to protect against .

 

[eytonxav]

Another form of diversification that I see as a hedge against fear, inflation not so much. Some people also opt for art and coins for similar diversification reasons.

 

[braumeister]

I think one of the ways gold got its reputation as an inflation hedge is the common (and largely true) saying that an ounce of gold has always been worth the price of a good men's suit.

 

[mathjak107]

If you bought the t-bills instead you would have gotten the suit and shoes

 

[Fermion]

In 1919 if you had dropped the O and just bought K (Kodak) with your $40 instead of gold, today you would have inflation adjusted $0

 

[meierlde]

If your buying gold as a hedge against the fall of society, I would suggest silver instead. Gold is to high priced to use as replacement currency after the crash back to the stone age. Silver coins such as silver dollars are better as they are more within the range of what goods might be available at the time.

 

[Running_Man]

here are the results of owning that 1 ounce of gold since 1975 , the first year to legally buy and trade it short of collectible's which by the way turned out to be the worst place to put money so far .

gold 175.00 an ounce in 1975 is today worth 1130.00

t-bills rolled over 1206.00

short term bonds 2175.00

60/40 18,600.oo

global stocks 63,995.00


so even trying to protect against inflation it has failed to do better than what it claims to protect against .

Price of gold in 1975 $175 Price adjusted for inflation to 12/31/14 $770.18 Premium to inflation earned: 47%
Taxes paid on gain: 0

Gold is a non interest bearing holder of value, to expect to outperform stocks in long term is not it's purpose.

According to your chart if long term goal is maximizing portfolio value at all costs then 100% global stocks is the way to go and any other investments are foolhardy

 

[gerntz]

here are the results of owning that 1 ounce of gold since 1975 , the first year to legally buy and trade it short of collectible's which by the way turned out to be the worst place to put money so far .

gold 175.00 an ounce in 1975 is today worth 1130.00

t-bills rolled over 1206.00

short term bonds 2175.00

60/40 18,600.oo

global stocks 63,995.00


so even trying to protect against inflation it has failed to do better than what it claims to protect against .

Does the t-bills rollover & short-term bonds include the income taxes on it at some rate? Thanks.

 

[mathjak107]

no taxes , but gold is taxed as well at full income rates too

 

[gerntz]

Au isn't taxed till you sell vs. interest being taxed ongoing & its LTCG are taxed at the collectibles rate of 28%.

 

[Running_Man]

Au isn't taxed till you sell vs. interest being taxed ongoing & its LTCG are taxed at the collectibles rate of 28%.

GOLD is taxed at a maximum 28% not a required 28%, if you are in the 15% bracket the tax will be 15 percent. It is also very possible to specifically identify the gold you buy so that you could pick and choose if the portfolio needed rebalancing which gold to sell to bring the best advantage for tax purposes.

With some tax planning, if gold is required to be sold for rebalancing within a portfolio, such as in 2008 or 2009, the capital gain on gold can be offset with capital losses taken on stocks, resulting in essence of a transfer to a more favorable tax treatment of future gains on your equity holdings. If there are a lot of losses that could be harvested then you would sell your gold which had the largest gains.

 

[mathjak107]

if a tax deferred retirement plan was used and the next 40 years were the same taxes wouldn't matter much .

even so, the t-bill and gold may have been close figuring taxes but nothing else would have been . gold still holds the distinction of the worst place historically to put money .

 

[gerntz]

GOLD is taxed at a maximum 28% not a required 28%, if you are in the 15% bracket the tax will be 15 percent. It is also very possible to specifically identify the gold you buy so that you could pick and choose if the portfolio needed rebalancing which gold to sell to bring the best advantage for tax purposes.

With some tax planning, if gold is required to be sold for rebalancing within a portfolio, such as in 2008 or 2009, the capital gain on gold can be offset with capital losses taken on stocks, resulting in essence of a transfer to a more favorable tax treatment of future gains on your equity holdings. If there are a lot of losses that could be harvested then you would sell your gold which had the largest gains.

Thanks on the 15% thing.

It's not a good thing to have losses to offset gains. I'd much rather it all be gains.

 

[mathjak107]

there is no question to date gold has been the worst investment in history .
many do not call it an investment , they call it insurance but for what it has insured against to date has made it the costliest insurance to have .

every scenario pretty much has had another asset class run with the ball and surpass it .

i would go so far as to say even drop the words protects against uncertainty because as you saw it can't get anymore uncertain than the last few months .

you would have to add all kinds of dis qualifiers to that statement , like when the dollar is strong or when we are in a recession , or during a depression , or if the moon and stars are off.

the truth is we do not know what gold is supposed to respond to anymore .

 

[Running_Man]

there is no question to date gold has been the worst investment in history .
many do not call it an investment , they call it insurance but for what it has insured against to date has made it the costliest insurance to have .

every scenario pretty much has had another asset class run with the ball and surpass it .

i would go so far as to say even drop the words protects against uncertainty because as you saw it can't get anymore uncertain than the last few months .

you would have to add all kinds of dis qualifiers to that statement , like when the dollar is strong or when we are in a recession , or during a depression , or if the moon and stars are off.

the truth is we do not know what gold is supposed to respond to anymore .

Imagine it is 1975 and you could go back in time to advise a wealthy and respected doctor in what to invest, your answer would be global stocks I would presume. Now unfortunately for this doctor who worked in a hospital treating Americans, he lives in Vietnam and the Americans have just left and communists have taken over his country. His bank accounts and all his investments are confiscated and he is given a new job in a new rural city as a bus driver making subsistent wages. Enough for food to support his family but that is about it. All his investments have been taken from him by the new government.

Unknown to the government he had a supply of gold which he uses to bribe officials to get his son on a boat and out of Vietnam. His son 14, never forgets his family and works for years to save enough money to pay the exit fees for his family, whose father is still working as that bus driver at poverty wages to leave Vietnam and establish them in Montreal.

His son moves to America and does well working and investing and always living beneath his means. A percentage of his investments always goes into gold, a much larger portion into equities. He has done extraordinarly well for himself considering almost all his savings from his early life went to getting his family out of Vietnam. Now his former country is used as a hotbed of cheap labor for companies like Nike to make products in sprawling factories. Anyone who managed to stay invested in stocks and hold onto their stocks is doing extraordinarliy well. Unfortunately many tens of thousand were killed and hundreds of thousands had everything taken from them and they and their families, like my friends family were moved to the country.

Not everyone is fortunate enough to be born in the United States in the height of it's freedom and wealth. To take the United States history of the past 250 years and propel it as if it is the guiding principal on investing for all times is foolhardy and shortsighted, the the extent that 250 years of America is shortsighted in the history of the world. To read Harry Browne's book and to understand his theory of investing, the actual results an actual proposed portfolio over a very long time period can actually achieve is highly impressive.

But I am repeating myself here so I will end my participation in this thread with this note. More likely than not 100% stocks invested in global markets will be the surest way to vast wealth. I myself do not need vast wealth, I need to be able to take the wealth I have and earn between 2-3 percent over inflation for the long run and have confidence that I will do that. If the indexes over the remainder of my life return 10-15 percent over inflation I will be happy as this will mean great wealth for many more people and most likely peace in our time that is enduring, but I will not be downcast because I underperformed, I will be living a great life free from financial worry.

RM