Investing in gold and silver

[Froztwolf]

Hi guys.
I've been considering investing my recent savings in precious metals like gold and silver but I'm wondering how safe it is next to government bonds or similar. I'm not too concerned with making money of the investments, I just want to beat inflation.

Lately I've gotten the feeling that precious metals would be a great hedge against another dip in the stock market and that they should be fairly inflation proof but I don't really have the investment experience to know whether I'm right.

Anyone smart out there with experience in these matters?

[Solipsist]

I'm no expert, but I've been around long enough to know that precious metals are NEVER a bad investment.

Given the current state of the USD, I think you'd be a fool NOT to buy metals. But buy the actual metal. Don't do anything on paper, for I suspect it won't be very long before all paper is effectively worthless. Already is, IMO.

[Manomanman]

Originally Posted by Froztwolf

Hi guys.
I've been considering investing my recent savings in precious metals like gold and silver but I'm wondering how safe it is next to government bonds or similar. I'm not too concerned with making money of the investments, I just want to beat inflation.

Lately I've gotten the feeling that precious metals would be a great hedge against another dip in the stock market and that they should be fairly inflation proof but I don't really have the investment experience to know whether I'm right.

Anyone smart out there with experience in these matters?

I put my life savings in 2008. I made a few thousand bucks.

Gold is probably a bit overpriced right now and may retract.

Unless you've got a TON of money to put in, it's not worth it. Gold is a good long-term store of value, not short-term. I'm talking 10+ years.

[Requiem]

Originally Posted by Froztwolf

Hi guys.
I've been considering investing my recent savings in precious metals like gold and silver but I'm wondering how safe it is next to government bonds or similar. I'm not too concerned with making money of the investments, I just want to beat inflation.

Lately I've gotten the feeling that precious metals would be a great hedge against another dip in the stock market and that they should be fairly inflation proof but I don't really have the investment experience to know whether I'm right.

Anyone smart out there with experience in these matters?

Let me ask you this: Do you understand the macroeconomic factors that influence the price of gold and silver in extreme detail? Would you say that you have enough knowledge in this area to consider yourself an investor, or would you say you're just a speculator, making a gamble that the prices will stay flat or go up?

Just about everyone that invests in these metals is a speculator, not an investor.

Gold provides no cash flow. It's a mineral for which the price varies. Gold has spiked in price in the last several years, and while that should be a cautious sign for investors, it is instead drawn people to chase gains. The last time gold spiked very high was in 1980 during a very bad recession. When the recession ended, gold lost most of its value until two decades later when it began increasing dramatically in price again.

There are plenty of other investments that are resistant to inflation. Stocks for companies that pay dividends are my personal favorite. Depending on which companies you choose, you can get 3-6% or more back in dividends each year in addition to capital gains. Best yet, if you invest in an American company that has a significant amount of its revenue coming from other countries, then a weak dollar is GOOD for them. They become more profitable when that happens, because they are collecting revenue in stronger currencies and paying much of their expenses in a weakening currency. It's best to choose companies that have good pricing power for their products. You can also invest in international companies that have all of their expenses and revenues in non-American dollars.

[Requiem]

Originally Posted by Solipsist

I'm no expert, but I've been around long enough to know that precious metals are NEVER a bad investment.

Given the current state of the USD, I think you'd be a fool NOT to buy metals. But buy the actual metal. Don't do anything on paper, for I suspect it won't be very long before all paper is effectively worthless. Already is, IMO.

Except that sometimes precious metals are a bad investment.

If you bought gold in 1980, you would have lost most of your money in a matter of a few years, and wouldn't have even broken even until almost three decades later.

[TheLifeQuaker]

It sounds like you're looking to invest a bit more long term than a few weeks.

Gold in particular is pretty much at an "all time high." But it is taking a breather at the moment and really not going anywhere right now - so I wouldn't put anything in it yet (unless you were actually trying to make a shorter term profit). Silver is fairly similar, although still looks to be in a bit of an upward trend. Eventually they will go into a downward trend - but who knows where they will top off before that happens...

If you want 'security' longer term, than I would not put your money in them personally...especially if it is your savings. You would probably be safer with government bonds.

That said, if we really wanted to project into the worse circumstances - precious metals when physically purchased would be far more 'secure'...government bonds could end up worth nothing...precious metals will probably always be worth something. I don't see that happening though. :P

[SatvikBeri]

Requiem is pretty spot on.

People think of Gold as a safety/currency, but it's really a commodity just like investing in oil, steel, or rubber. Gold prices fluctuate a lot, it is not a "safe" investment. Furthermore, most vehicles for investing in gold aren't very good and charge high fees.

If you just want to beat inflation, why don't you invest in TIPs?

[Manomanman]

Originally Posted by SatvikBeri

If you just want to beat inflation, why don't you invest in TIPs?

Because there's a chance the government will go bankrupt soon (i.e. you have to factor RISK into your investment decisions).

[SatvikBeri]

Originally Posted by Manomanman

Because there's a chance the government will go bankrupt soon (i.e. you have to factor RISK into your investment decisions).

Sure.

In the case of the individual investor though, most vehicles you can find for investing in gold will be worthless if the government goes bankrupt anyway. And buying actual gold isn't a great option because you pay retail price and get wholesale price when you sell.

For Froztwolf, TIPs are probably the lowest risk option.

[amurorei78]

I would say in every investment look at the %p.a. Whicever gives you the highest, go for it. Of course for me I'm okwith the risk that comes with it. But in every investment, do your homework to check it out thoroughly. It all boils down to your appetite.

[saif]

haven't read the full thread but found this today Whistle Blower Comes Forward With Solid Proof The Price Of Gold And Silver Is Being Manipulated By Major Financial Institutions

[Froztwolf]

OK so it seems gold might not be the best option. I had suspected it might be in a bubble but other graphs I have seen so far have made it seem like gold has been slowly rising forever rather than being even and then quickly bubbling up.

What is a TIP?
I guess I should note that I live in Canada so not all American investment vehicles may be available to me.

I do have a secondary motive. Not only do I want to beat inflation, I want to hedge against a secondary economic collapse if possible, meaning that corporate stocks and bonds are mostly out of the question.

One of the reasons I found gold to be attractive is that people haven't really been encouraged by the banks to purchase gold, but rather to sell it. That tells me that those that control the banks right now are buying and presumably expecting to make a profit.

[SatvikBeri]

Originally Posted by Froztwolf

OK so it seems gold might not be the best option. I had suspected it might be in a bubble but other graphs I have seen so far have made it seem like gold has been slowly rising forever rather than being even and then quickly bubbling up.

What is a TIP?
I guess I should note that I live in Canada so not all American investment vehicles may be available to me.

I do have a secondary motive. Not only do I want to beat inflation, I want to hedge against a secondary economic collapse if possible, meaning that corporate stocks and bonds are mostly out of the question.

One of the reasons I found gold to be attractive is that people haven't really been encouraged by the banks to purchase gold, but rather to sell it. That tells me that those that control the banks right now are buying and presumably expecting to make a profit.

Banks haven't made the brightest decisions in the last few years

A TIP is basically a bond that returns a certain % (around 1 or 2%) + inflation. So if inflation is 3%, a TIP might return 4-5%. I'm pretty sure you can buy TIPs outside the USA.

What level of economic collapse are you trying to hedge against? Great depression level, or The End of the World as we Know it, anarchy-style?

[Froztwolf]

Hehe, I think "the end of the world as we know it" kind of depression isn't something you hedge against. Not sure that would do any good anyway :P

I'm thinking anything from a large dip to a great depression. I'm not that interested in making money from the investments, just to have them retain their value in any situation. TIPs sound like they could do the trick; I'll look into that.

Thanks for the advice everyone.

[gene2009]

Buy gold coins, but you have to know the subject well.

[Manomanman]

Originally Posted by Froztwolf

OK so it seems gold might not be the best option. I had suspected it might be in a bubble but other graphs I have seen so far have made it seem like gold has been slowly rising forever rather than being even and then quickly bubbling up.

What is a TIP?
I guess I should note that I live in Canada so not all American investment vehicles may be available to me.

I do have a secondary motive. Not only do I want to beat inflation, I want to hedge against a secondary economic collapse if possible, meaning that corporate stocks and bonds are mostly out of the question.

One of the reasons I found gold to be attractive is that people haven't really been encouraged by the banks to purchase gold, but rather to sell it. That tells me that those that control the banks right now are buying and presumably expecting to make a profit.

The best advice I've heard: "Buy $10,000 worth of bullion. This will save you in case of hyperinflation. NEVER BUY GOLD TO TRY AND GET RICH. You simply won't. This has never happened statistically speaking. There are other "games" to play if you're looking to make money investing."

[SnerpGoodWord]

Originally Posted by Solipsist

I'm no expert, but I've been around long enough to know that precious metals are NEVER a bad investment.

This is patently false - buying gold at the end of the Carter administration and holding it through the Regan recovery would have been a colossal disaster, for example. Your investment would have lost roughly half it's cash value right off the bat IN A PERIOD OF STILL-SUBSTANTIAL INFLATION. So from a purchasing power POV, you would have lost more like 2/3 of its value.

Buying gold coming out of democratic administrations with loose monetary policy and heading into economic recoveries is not a good plan.

[SnerpGoodWord]

Originally Posted by Froztwolf

Hehe, I think "the end of the world as we know it" kind of depression isn't something you hedge against. Not sure that would do any good anyway :P

If you're going to hedge against that - buy land, sheep, water rights and guns/ammo. Gold would be next to worthless in such a scenario since the only two consumers of gold (jewelry and electronics) would evaporate.

[SnerpGoodWord]

Originally Posted by saif

haven't read the full thread but found this today Whistle Blower Comes Forward With Solid Proof The Price Of Gold And Silver Is Being Manipulated By Major Financial Institutions

This rumor is basically ♥♥♥♥♥♥♥♥. It's entirely possible that the precious metals futures can be manipulated (in either direction) for the short period of time. But in order to do so long term, the entity doing the manipulation would have to hold large positions one way or the other. That would show on the COT (commitments of traders) reports from CFTC just like when the Hunts messed with silver back in the late 70's. You can read the COT for yourself, but I see no evidence of a large silver or gold short held by any bank, in excess of hedging increased mine production. And as the hunts discovered, you can't corner a market in futures because the exchange can always delay delivery.

[MartialDev]

If you want income, you can own miners that pay dividends, or you can write covered calls against your position.

[SatvikBeri]

Originally Posted by MartialDev

If you want income, you can own miners that pay dividends, or you can write covered calls against your position.

Both those options seem to be riskier than what FroztWolf wants.

By the way Frozt, one thing to consider is currency risk. If you're outside of the USA, make sure to get bonds in your own currency. The change in valuations of currency is not really well correlated to inflation.

[MartialDev]

I suppose it all depends on whether you want to beat the real inflation, or the government-reported inflation. Anyone considering gold needs to look into the difference.

[Froztwolf]

I'm trying to beat real inflation of course but I haven't seen anything yet that's close to guaranteed to do that. Seems like commodities would usually be a good bet but not at the moment.

In fact I probably would buy land (although maybe not sheep and shotguns) if I had enough but I'm not looking at quite that much money to invest right now.

[openeyes]

Originally Posted by Froztwolf

Anyone smart out there with experience in these matters?

Check out Harry Browne's Permanent Portfolio:

25% – Stocks (in a broad based stock index fund like the S&P 500)
25% – Long Term Treasury Bonds
25% – Gold Bullion
25% – Cash (in a Treasury Money Market Fund)

Permanent Portfolio Historical Returns | Crawling Road

"The Compound Annual Growth Rate (CAGR) is 9.7% for the entire period.

"The worse loss for the portfolio in any one year was 1981 which had you down only about 4%"

[pjhaggerty]

I would suggest TIPS instead of gold

there is no inherent property of gold as a metal that makes it impervious to inflation. It is only a hedge for inflation because everybody thinks it is. This causes people to buy when inflation is up, therefore raising the price of gold as inflation goes up. If that collective delusion ever evaporates, there goes your inflation protection.

TIPS inherently have inflation protection built in to them. You face the risk of governments collapsing, but if that starts to happen, you as a small investor will have enough liquidity somewhere to get out before the collapse. Governments don't want to default on their debt when they need lenders to finance their operations, anyway.

btw, TIPS stands for Taxpayer Inflation Protected Security. It's a bond which pays a return plus the increase or decrease of an official inflation gauge (usually the CPI). This also means that during deflationary periods, it could go down, depending upon the terms of the bond.