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Post by Glom on Jan 11, 2011 14:18:20 GMT -4
Is it time to buy gold?
I invested in some gold a couple of years ago. Did well in the end when I sold it to raise cash for the deposit on my flat. Is it time to get back into it? I've only got several hundred pounds to work with at the moment and possessing gold entails larger admin costs.
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Post by gillianren on Jan 11, 2011 15:04:08 GMT -4
Gold is no better or worse an investment than many others. I would say prices are falsely inflated now by all those people who think it's the safest investment there is, but I could be wrong.
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Post by Glom on Jan 11, 2011 15:20:31 GMT -4
Yes the bubble is a great fear.
Most of my savings go into stock. The advantage of stock is that as long as I keep trading (which can just mean saving more and more) and pay no admin fees (aside from initial charges of course) and collect nice dividends as a secondary gain to the appreciation of the investment itself. With gold, I pay a regular custody charge for any holdings I may have and depend solely on the metal become ever more precious to cover and make it worthwhile.
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Post by echnaton on Jan 11, 2011 16:13:05 GMT -4
Gold is a speculative commodity, not really an investment. Any more than petroleum is an investment. Although the dense, clean and shiny gold is far more pleasant to own the smelly, sticky and bulky petroleum. If you want to understand commodity prices, first look at the dollar. Gold goes up when the dollar is down. People tout gold as a hedge against inflation, and it can be that, but right now the outlook for US dollar inflation is negligible. In my estimation, gold is high now because the dollar is low. If the Federal Reserve stops pushing the dollar down, then gold will reverse it course and start to fall. The Fed typically acts in an effort to mitigate the effects of recessions on employment, a lagging indicator of the economic cycle. While unemployment in the US is high, it is improving and the widespread economic growth here is likely to require additional hiring during the year. This means that the Fed should start hiking interest rates either late in 2011 or early in 2012. If you want to speculate some be my guest, you can make a lot of money quickly but in the long run, gold serves as a store of value, not a vehicle for increasing your wealth. Right now, to me, equities look like a better bet.
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Post by Glom on Jan 11, 2011 18:26:29 GMT -4
And there in lies the crux of the matter. If I'm only storing value in the long term, then what is the npv when taking into account custody charges?
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Post by PeterB on Jan 12, 2011 8:30:18 GMT -4
Yes the bubble is a great fear. Most of my savings go into stock. The advantage of stock is that as long as I keep trading (which can just mean saving more and more) and pay no admin fees (aside from initial charges of course) and collect nice dividends as a secondary gain to the appreciation of the investment itself. That's the main reason I'm not interested in investing in gold. Regardless of how much profit you make when you sell it, it doesn't pay any dividend in the interim, and it isn't productive in any way. At least with most shares you're owning part of something that makes something or does something. Which can't go on forever. Well, I suppose at some point in the future, we'll hit Peak Gold, but I'd be curious to know if anyone's made that calculation...
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Post by echnaton on Jan 12, 2011 10:47:30 GMT -4
And there in lies the crux of the matter. If I'm only storing value in the long term, then what is the npv when taking into account custody charges? There are some complicated mathematical ways of estimating the value of holding gold (or any commodity) relative to purchasing a futures contract. But the math really requires that the buyer is indifferent between holding the gold and the possibility of coming up with large amount of cash on contract maturity, something most of us are not truly indifferent to. The ultimate NPV is based on an estimation of the future price of gold over a specific holding period, your opportunity cost and risk tolerance. If the NPV is positive, you buy. That is one of the reasons we do not buy gold for our clients, there simply is too many assumptions we have to make. Gold is ultimately a speculative asset.
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Post by Glom on Jan 12, 2011 17:34:55 GMT -4
Yes. I think I'll refrain at this point. Was fun when I did own some though and I had a good run.
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