Is buying GOLD a good investment

[Dr. Shane]

Everyone was not predicting the burst of the bubble. On the contrary most people were predicting that house prices never really fall. The minority who were predicting the pop of the bubble were laughed at.

[lazarus]

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The people I know were all predicting both the high-tech and the real-estate bubble to burst. We even discussed the real-estate bubble here on Club Adventist on several occasions. I don't recall anyone saying the bubble wasn't going to burst.

We have different definitions of everyone. Of course there were people here and there saying it was going to burst but I feel that they were in the minority.

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That is the crux of the issue. Many borrowed money to buy real estate in hyper-inflated areas. The bubble burst and now they owe more than the property is worth. They can't unload it. To make matters worse, many borrowed with adjustable-rate mortgages and can no longer afford their mortgage. If they had bought the property with cash, even if they paid too much for it, they would be OK. They could wait out the down turn and eventually sell it at a price much closer, or even above, what they paid for it.

Buying cash doesn't mean you lose less money. It means you lose your own money rather than someone else's money. The crux is really about investing for purely capital gains. They lost because they invested thinking that real estate would go up. Not many invested for cash flow.

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Since our government has went off the gold standard, gold is just another commodity. It is no different than copper, oil, pork bellies or soy beans.

I have to disagree. The other commodities that you mentioned are consumed. Gold is generally not consumed it is seen as a store of wealth. Central banks are not buying gold to use it for industrial purposes. They see it as money.

[phkrause]

Who is the Colson guy?

I really like Dave Ramsey's approach I just disagree with him on the precious metals issue.

He does those Gold commercials on the tube. He was in the Nixon watergate fiasco.

ps: I just googled him. Its Charles Colson, he was the special council to Nixon.

[Dr. Shane]

Buying [with] cash doesn't mean you lose less money.

[lazarus]

You actually do lose less money when buying with cash unless you go bankrupt and don't pay your bills - which is a comment I was responding to. You had stated that many were forced into bankruptcy because of bad real estate investments. Now, why would a bad real estate investment force someone into bankruptcy? It would only do that if they bought it on borrowed money.

That was the problem with real estate as an investment. Many people who see/saw real estate as an investment could only invest in it using borrowed money. There are not many out there who can buy real estate with cash so they invest with borrowed money. The challenge however is not so much that they borrowed the money it is that they expected to make the profit on the appreciation rather than the cash flow.

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However, even when everything goes well. If a person buys with cash they make more money because they pay less. If I buy property with borrowed money, I have to pay interest on that money. If I buy it with cash, I pay no interest. So if I sell the land for a profit - I make more money. If I sell the land for a loss - I lose less money.

Potentially people saw that they could make more money if they borrowed. So if you have $50,000 you could use 25000 and borrow the rest. If you stick to cash then you only have $50000 to invest.

Don't have the figures but my guess is that there are far fewer of those cash investors out there because the potential return us much less. The risk is less but so is the return.

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Again, you are talking about speculations. What is seen as a store of wealth today can be seen differently tomorrow. When is the last time a nation went to war over gold? Nations go to war over oil and food. So which commodity is really the most valuable?

Nope not speculation.

http://en.wikipedia.org/wiki/Gold_reserve

A Gold reserve is the gold held by a central bank or nation intended as a store of value and as a guarantee to redeem promises to pay depositors, note holders (e.g., paper money), or trading peers, or to secure a currency.

Today, gold reserves are almost exclusively, albeit rarely, used in the settlement of international transactions.

At the end of 2004, central banks and investment funds held 19% of all above-ground gold as bank reserve assets.

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Any commodity is seen as money. All of the oil in the US strategic oil reserves is counted among the government's assets on the same page that the gold in Fort Knox is counted.

Central banks keep reserves of gold and other precious metals to store their money. They store commodities to consume them in times of crisis not as a means of exchange. If there was an international barter system then yes but the tool used for trade is still money. For thousands of years Gold has been seen as money. That is why banks store it. Governments know the ultimate true value of dollars, yen, pounds, francs...... virtually nothing because they are just printed pieces of paper.

[lazarus]

Shane: take a look and tell me what you think.

[Dr. Shane]

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Any commodity is seen as money. All of the oil in the US strategic oil reserves is counted among the government's assets on the same page that the gold in Fort Knox is counted.

Central banks keep reserves of gold and other precious metals to store their money. They store commodities to consume them in times of crisis not as a means of exchange... For thousands of years Gold has been seen as money. That is why banks store it.

The difference between gold and other commodities is the value per ounce. A bank has limited storage space. Consider the space it takes to store one million dollars of gold when compared to the space it takes to store one million dollars of crude oil or corn. The price of gold goes up and down like any other commodity. As far as investing goes, the more stable the commodity, the less risk there is. The recent jump in gold prices is an indication that it is a high risk investment. It can go down as fast as it went up - perhaps faster.

If a person investing in real estate cannot afford to pay cash, then he or she shouldn't be investing in real estate. A good mutual fund is the place they should put their investment money. An IRA is a good option for most people. The only time a person should borrow money to buy real estate is when they are buying a home to live in themselves. Even in those circumstances, they shouldn't finance it more than 15 years.

[Dr. Shane]

Shane: take a look and tell me what you think.

He is right that interest rates need to go up. Interest is the "cost of money". As long as money is cheap, commodities will continue to rise in value. However, he is also right about what the results would be of raising interest rates now. It would kill the fragile economy.

The answer is to create wealth by producing more goods and services. That is real wealth. Just printing more paper money is artificial wealth. So how can we create more goods and services? The answer is simple:

DRILL BABY DRILL!

We need a new energy policy. We need to be drilling for more oil. We need to be building coil-to-oil refineries and mining more coal. We need to be building more nuclear power plants. All of these proposals are profit-making initiatives that private sector companies will do with banks and investors funding. They do not require additional government spending. They simply require the government to turn on the green light.

[lazarus]

As far as investing goes, the more stable the commodity, the less risk there is. The recent jump in gold prices is an indication that it is a high risk investment.

If its a high risk the price would be falling becasue people would be selling. People are BUYING gold becasue they see it as a safer investment than real estate, mutual funds and even Treasuries. Prices have been increasing for years but the recent spike is because of economic and political uncertainty. It's a safe haven. At least a safer haven than other asset classes.

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A good mutual fund is the place they should put their investment money. An IRA is a good option for most people.

Mutual funds are worth the paper they are written on. I can pick up a ream from Walmart for $2.99.

[Woody]

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DRILL BABY DRILL!

We need a new energy policy. We need to be drilling for more oil.

Shane ... you are so right. Once again ... Sarah Palin has been proven right.

[phkrause]

Mutual funds are worth the paper they are written on. I can pick up a ream from Walmart for $2.99.

LOL, good one Lazarus. My opinion is there is nothing worth investing in. All my 401k, Roth IRA, Real Estate are all gone from the stock market collapse and of course my lay off back in '08. As an old friend of mine once told me, only invest in heaven and you'll be OK.

[lazarus]

There's always something worth investing in. Right now its commodities as long as Ben B keeps printing dollars. When conditions change strategies change.

Of course you are right. Most importantly we must store our treasure in heaven.

[Stan]

Purchasing land on www.adventistan.com is one of the best investments ever.

[Dr. Shane]

It's a safe haven. At least a safer haven than other asset classes.

[lazarus]

It is not any safer than any other commodity. The price could drop dramatically and rapidly. All that needs to happen is that central banks start dumping gold on the market. There are a thousand other scenarios that could cause the price to drop fast. In fairytales gold is the most treasured asset but in the real world gold is just a commodity like corn or crude oil.

Right now it is safer. Why do you think investors are investing in it. Why do you think central banks across the world are buying more of it? Why is the Chinese government telling its people to buy it? Why is the price rising?..... because it is safer.

Of course the price can drop but so can mutual funds or anything else.

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US News & World Report: 100 Best Mutual Funds

Average rate of return is about 6%. This is precisely the point i'm making. How does that compare to Gold over the last 10 years?

[Dr. Shane]

Why do you think investors are investing in it?

[lazarus]

Day traders manage short-term investing.

Day traders? You don't day trade Gold/Silver coins/bullion. How can you if they are in your bank or in a safe. They folks I know who are investing in precious metals are not day traders. They are ordinary folks who see that precious metals and even copper are increasing in value.

Of course they are people who monitor the day to day fluctuations in prices and invest accordingly. I'm not talking about that. People are going to local precious metal dealers and investing that way.

Originally Posted By: lazarus

Mutual funds are diverse. Gold is not.

Diversify diversify!!! That's been the mantra for many years put out by the mutual fund industry. They mean diversify your stocks! When the stock market crashed everyone got hit. True diversity is across asset classes, Mutual funds, Real estate, Commodities and Debt.

There are Gold mutual funds, ETF's, bars and coins. Who said to put all your retirement into gold? We talking about whether gold is a good investment.

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If a person buys gold they are putting all their money in that one basket.

Same can be said for mutual funds. The basket is the stock market.

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It is very likely that there will be a gold crash within the next 24 years.

Do you think there will be a stock market crash in the next 24 years?

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Some get all excited about how fast the hare can go - and a few make money betting on the hare in the short term. Many others lose money betting on the hare. Slow but sure, the turtle provides the most security for the most people.

Precious metals have been rising for the past 10 years. What you describe happens in the stock market too. Mutual fund managers tell you to invest in mutual funds for the long term becasue they want your "long term" commission!

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Real estate is now in a position to provide good returns. If the central banks keep printing money, that will result in inflation. So the lot someone buys for $50,000 today will increase in value due to inflation. Thus when sold twenty or thirty years down the road, no money will have been lost. Gold, on the other hand, will not likely keep up its rate of growth over the next few decades.

If you're looking at capital gains in real estate don't bank on it. Signs are that real estate has not hit the bottom. There is a another of wave of mortgage resets coming in 2012-13, which will probably lead to another spike in foreclosures which will drive prices down.

Sure, I agree Gold cannot keeps up its rate of growth, the pace may slow in time may slow but right now its a good investment. I think during our discussion silver increased about $3/oz. If you had just 100 oz that's an incredible return.

[Dr. Shane]

Day traders? You don't day trade Gold/Silver coins/bullion.

[onlyhumanme]

I started buying silver at 8.57usd per ounce in 2008 i think? had around 40k worth although most i sold to cover a few months of unemployment and a course i did over the last 3years and a few other expences.

It hasnt risen as much as people believe as its the usd that has gone down the purchasing power of the aussie dollar for example being a commodity currency has gone beyond the value of the usd.

Id say that there might come a time to throw your gold and your silver into the street in the later days and there might be a physical sign of this but probably also a spiritual symbolism attached.

If we have inflation which is likely due to the great depressions monetary contractions lesson,aging population,mass credit,cyclical retracement,government fiscal policy, so id say its still a good investment however look also into deflation,downside risk and parabolic curves which occur shortly after hyper inflations and panic so as not to get Gold(or silver) Fever as Gold has no productive capacity.

Learn to read tecnical charts and have an idea of economics if your uncertain.

[phkrause]

Again I say, I wouldn't waste my money on Gold or Silver, or anything else for that matter. I did that and have nothing now to show for it. (:

[lazarus]

Yes, they do. It is bought and sold like any other commodity. The symbol for gold is XAU and the symbol of silver is XAG.

Of course day traders deal in stocks and ETFs. I'm talking about physical.

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One can go back and look at the mutual fund's history and take any ten-year period and see that it grew in value. You can't do that with gold.

There are gold mutual funds. There are precious metal funds.

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There will be ups and downs but the indexes will grow over the next 24 years unless something apocalyptic occurs like the end-time prophecies.

You have a lot of confidence in Wall St. A lot of people lost a lot of retirement funds recently. Financially, it was an apocalypse.

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It is most assuredly at an over-inflated value today.

On what basis do you say that? Could it be that gold it is going back to its normal value? Could it be that the dollar is going back to its normal value, 0. It's paper.

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The balloon will eventually pop and a lot of people will lose a lot of money.

Of course gold will go down. Real Estate will go back up and then go down. Stocks will crash again. In every situation folks will lose a lot of money.

Do the research, mutual funds are not as solid and stable as the companies who sell them make them out to be. Here are some books that tackle these issues. Our financial landscape is changing.

http://www.amazon.com/Lies-About-Money-Portfolio-Future/dp/1416543120

http://www.amazon.com/Bad-Money-Reckless-Politics-Capitalism/dp/0670019070

http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231

[Dr. Shane]

Of course gold will go down. Real Estate will go back up and then go down.

[lazarus]

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How about four years of undergraduate work for a business degree? Does that qualify as research? What about the opinions of Dave Ramsey and other financial advisers that are not in the business of selling mutual funds or any type of investments?

A lot of people with business degree's lost money during this recent financial crisis. A lot of the "analysts" on CNBC have business degrees and told everyone in that the economy was ok. I 'm not saying that your business education counts for nothing but I believe that conditions have changed and therefore conventional wisdom needs to change.

Another video.

Watch the whole thing but check out 2:36 in particular.

Dave Ramsey is great when it comes to debt and spirituality when it comes to money but pretty much repeats the conventional wisdom when it comes to investing. Check out Remsey's sponsors on his show to see what he's "selling".

Again Gold has been a good investment for the last 10 years. Do you deny that?

[Dr. Shane]

A lot of people with business degree's lost money during this recent financial crisis.

[Bravus]

(on Shane's last question) Nope, because taking inflation into account that is a very low rate of return compared to other investments. Same actually applies to gold.

Two quick comments:

1. Buying *any* commodity at record high prices is not good investment: it's likely to recede from those records as the economic cycle changes. Buy low, sell high, not the reverse.

2. 'The fundamental things apply, as time goes by...' and a diversified portfolio of investments is one fundamental that continues to make sense. The economic cycle means one rises as another falls, so spread the risk across commodities, stocks, real estate, bonds and cash - and avoid debt like the plague it is.

And a third:

3. These treasures are important to caring for our families and being able to give, but our real treasures still need to be in Heaven: the only haven safe from the vagaries of the economic cycle and the depredations of the dishonest.