General Question

poisonedantidote's avatar

In terms on an investment, how reliable exactly is gold bullion? (and other metals)?

Asked by poisonedantidote (21638points) October 8th, 2010

Over the past couple of years, I have heard all kinds of horror stories about pension companies going bust, governments extending the age of retirement, and other such stories. This has got me thinking about my own retirement. While I am still only 27 years old, I realize the way I live my life is going to make it very hard to get good security in my old age, I have moved from country to country a couple of times, and probably will do so again in the years to come, and I have no problem being paid in cash without letting the tax man know from time to time.

I have been looking in to bullion, but all the positive reviews on buying gold and other metals I have found are usually by people who just happen to have some to sell. So I was curious to see if I could get any independent information on the topic.

I am mainly looking in to gold at the moment, but also interested in silver, platinum, palladium, and maybe even copper and titanium or other metals. Do you have any experience with this kind of thing? Is investing in gold as secure as they say it is? What is its track record for staying ahead of inflation? Is there anything else I should know?

note: I’m not rich, you can buy the stuff in bars as little as 1 gram all the way up to 12.5 kilo ingots. Personally I fall in to the 10 to 20 gram category in the form of sporadic purchases.

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13 Answers

Lightlyseared's avatar

It’s OK assuming the UK government isn’t doing anything stupid like dump tons of the stiff on to the market and announcing that they were going to do it resulting in the price plummeting.

YoBob's avatar

Here is a price chart for the past 20 years

poisonedantidote's avatar

@YoBob that would make it seem worth while for sure.

Tropical_Willie's avatar

The saying “buy low, sell high” comes to mine. Right now the metals market is “high”, so it would be the time to sell.
We may never see the price of metals drop to levels they were at five years ago. But there maybe drops in the future that would be an indicator to “buy low”.

wundayatta's avatar

@YoBob Is that graph shown in inflation-adjusted dollars? Here’s and interesting chart showing the current dollar adjusted gold price for almost a century. The only time gold was higher was during the Reagan recession. It peaked at $2250 in current dollars back in 1980. Right now, it’s a little over half that.

This recession is much longer than that one, and people expect it to go on longer. That suggests that people are not flocking towards gold as they did then. The reason is that gold is seen as a hedge against inflation, and inflation was around ten or fifteen percent back then, while it’s maybe 2% now.

Gold is also seen as a hedge against disaster—like war or famine or comet strike. We’re having those things (except the comet strike), but they don’t seem to be really worrying people that much. Gold was useful because you could carry it around. I don’t think people see carrying around a chunk of gold as very useful any more. You can’t eat gold. The only thing it’s useful for is weighting a body so it will sink into the ocean. Most people don’t want to be that body.

Unless some disaster strikes, I’ll bet that gold is pretty much at its peak. I think it’s a faddish kind of thing. I think that if you trade on a daily basis, you might be able to make money, if you learn the market very well. But for buy and hold… you’d be better off putting your money under your mattress. Well… almost. Gold just isn’t a very good investment, historically speaking.

CaptainHarley's avatar

I buy gold as a hedge against both inflation and the possible collapse of the monetary supply. The best way for an individual to buy gold is from a reputable dealer online in the form of coins, especially coins which have collectors’ value. I recommend the American Gold Eagle:

mattbrowne's avatar

When it comes to speculation nothing is reliable.

CaptainHarley's avatar

Gold isn’t very speculative at all these days, not since the mid-eighties. The price has been steadily climbing since then.

mattbrowne's avatar

The price of gold steadily climbing for 25 years is no reason whatsoever to believe that investing in gold isn’t speculative.

Take a look at real estate prices from 1980 to 2006 and this made millions of people believe that houses aren’t very speculative at all these days. The price has been climbing since then, especially in recent years. 2007. Oops. 2008. Double oooops.

Remember: Hey, guess what, you don’t even need a good job to buy your own house. And for good measure, no interest to pay for the first two years. Easy credit. So easy. Go for it. A risk-free endeavor.

So, my advice, be careful. Gold is speculative, but with a good investment portfolio certain risks can be managed and there’s no reason not to buy gold at all. Gold might cost $1500 soon, but it could also drop to $1100. No one knows.

CaptainHarley's avatar

If you want to get right down to it, LIFE is speculative. I simply see gold as the least speculative investment, especially now. If the currency tanks, you’ll be glad you bought gold.

mattbrowne's avatar

Houses were thought to be the least speculative investment.

Personally I fear a speculative bubble for gold is being created right now.

Besides, if you don’t trust the dollar why not buy euros? Of course this would be speculation too.

wundayatta's avatar

@CaptainHarley If you would have looked at the links I provided, you would find that the price of gold dropped from around $900/oz in 1985 to $300/oz in 2000. It has only recently risen to around $1200, and from the look of things, this may be the peak. These figures are all in 2010 dollars (they have been adjusted for inflation).

The other link I provided shows how gold prices have consistently been beaten by the Dow Jones Industrial Average. Yes, there have been times when gold has done better, but those are short periods of time and they are usually followed by much longer periods of time of poor growth—and often decline. If you time it right, sure, you can make money. But people who time markets had better be professionals or lucky. Most of us can’t do it.

HerbertH's avatar

Any investment avenue that helps you financially through bad times can be called a reliable investment.
During times of a bad economy – salary cuts, rising unemployment rates, and increasing prices of groceries and daily products, it can be a struggle to make ends meet. Such tough times trigger the need for an investment avenue that you can fall back on as a solid money stream.
When the economy takes a dive, large corporations can go bankrupt. Consequently, their shares, stocks, mutual funds, and bonds lose value. Even gold-related equities fall. At the time when you need your investments to yield a sizable return, your investments fail to perform.
This creates a bearish trend which affects almost everything that has an economic value, including properties, commodities and even currencies.
Physical gold is an exception. Many countries have their currencies linked with gold (known as the gold standard). They turn to buying gold in order to strengthen their currency. This humongous demand for gold in turn increases the price of gold, specifically during an economic meltdown.
Therefore, gold investment is often called a ‘safe haven’.

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