In fact at one time, most of the world backed currencies with precious metals. It is only recently that that has not been the case (like less than 100 years). So is gold or silver, or any other commodity a good investment?
The answer is it depends, and that is the point when thinking of investing in anything. Precious metals have always held some value to people, they have never been worth nothing. However, the price fluctuates just like any other investment, and it is possible to lose money buying these metals.
Much of the fluctuation runs concurrent with the economy. And we can expect it to lose value if the economy rights itself and moves into the boom phase. As in the stock market, timing is everything. The goal is to buy low, and sell high, but how do we know when that happens? In the 1980s I worked for a large national retailer. That retailer was the Walmart of its time. They generally sold merchandise that was a value to their customers, value meaning price and quality. In the early 1980s, they decided to add gold bars to their inventory, after all the price was skyrocketing. They ordered the gold, shipped it to the stores only to learn the lesson of dropping prices. They sat on that gold, hoping it would go back up.
The point is that by the time most people are aware of a increase in gold prices, the low is already long gone and statistically the risks are higher that they will not make a profit on the investment. When gold fever hits, the prices are close to falling. Which in a way explains why the price is dropping now. Yes gold has value, but that value is different to different people. Those with little knowledge of the market, are the ones most often hurt by it. By the time man street sees the run up, it is getting close to the top. Once at the top the only place to go is down.
Gold is also affected by currencies. Inflation in currencies like we are experiencing now will cause the price to go up, but not the value. It is only keeping pace with the value of the currency. So if you believe currency inflation will continue, then it is OK to buy gold. But that will not bring appreciation, if an ounce of gold buys washer dryer set today, it will buy a similar one next year, even though the price of gold may be up, the value would not be.
If on the other hand, you invest in the stock market, or even in real estate, while the price could go to zero, along the way you should receive bonuses based on the productivity of the investment. In our example that might mean dividends, or rent received on the land. And, while the price may fluctuate on both those investments, like gold the value should remain constant to the economy, except when the company fails or drought hits. Both of those are less likely then many would think. Gold does not produce anything, and actually drags against productivity some, in that you need to store it somewhere, the storage will cost money.
 |
| advertisemnet |
So is gold a good investment? Yes if you are a master economist with a God's eye view of the future economy. Yes if you are lucky. Yes if you believe the world is dropping into chaos. No if you want a productive investment that will feed your family, in the case of land, literally. And land is the ultimate in limited availability, there has been no new land in thousands of years, and that is limited to the total mass of the planet.
It is good to have a number of different investments, some cash in the bank, some stocks, some in bonds, some land, and yes some precious metals. The point is to vary what you own to help lessen your hit if a particular investment goes south. And it is good to not buy because the price is rising, unless you know, through solid research, that the trend will continue. Or at least that's my belief...
Spend Well!
No comments:
Post a Comment