Is gold a good investment

Everybody (the dogs in the street) is talking about buying gold! Therefore is it not a time to avoid buying gold ? Very few people are talking about buying oil (black gold) now?
 
bogle said:
Everybody (the dogs in the street) is talking about buying gold! Therefore is it not a time to avoid buying gold ? Very few people are talking about buying oil now?
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I think we've yet to reach the 'mania' stage with gold and according to Peter Schiff, who's been bang on target with predictions on the US economy, housing, etc, gold should reach $2000/oz in the near future. When you take inflation into account, the price still seems reasonably low compared to its peak in the early 80s (link below). Oil prices do appear to be stabilising, your right. It's been hovering around $40/barrel for WTIC this year, so probably not a bad play if you're into trading futures.

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bogle said:
Everybody (the dogs in the street) is talking about buying gold! Therefore is it not a time to avoid buying gold ? Very few people are talking about buying oil (black gold) now?
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Excellent point. Posters promoting this investment on this site may well have their own agendas.
 
33cl said:
I think we've yet to reach the 'mania' stage with gold and according to Peter Schiff, who's been bang on target with predictions on the US economy, housing, etc, gold should reach $2000/oz in the near future. When you take inflation into account, the price still seems reasonably low compared to its peak in the early 80s (link below). Oil prices do appear to be stabilising, your right. It's been hovering around $40/barrel for WTIC this year, so probably not a bad play if you're into trading futures.

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And if it reaches $2200 it will have regained (in real terms) its recent all time high of 1981. Presumably most retailer investors would have been suckered into buying around that time. From 1981 to date it has not kept up with inflation. So maybe those who bought in 1981 can hope of breaking even soon on their investment. That is what you call a long term buy.
 
Eddie Hobbs on TV3's Ireland Am this morning advising people to invest in Gold. Is that good or bad??

;)
 
Do any of the people promoting gold in this thread have any vested interest(s) in promoting the puchase of gold?
 
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Yes sounds like a grand conspiracy of bullion dealers. ;-)
Not sure who is "promoting gold". Are the people who think stocks or property are good investments on other threads "promoting stocks" or "promoting property"?
Are Rabodirect "promoting deposits" when they post on threads re deposits?

Gold is only featured in the Irish media once in a blue moon as the vested interests don't sell it. Gold remains a fringe investment - when Bertie Ahern and taxi drivers starts telling you to buy gold as it is cheap it might be a good time to sell. Or when the Irish Times has a Precious Metals Supplement.

Think I might take Morgan Stanley's advice over Bertie:
Hyperinflation is a possibility, say Morgan Stanley
Kaminska, FT Alphaville
Morgan Stanley's Jocahcim Fels and Spyros Andreopoulos look at the possibility of hyperinflation hitting the western shores of the UK, Europe and the US in their latest note. Their conclusion is a little scary:
" we believe that buying some insurance against the black swan event of high inflation or even hyperinflation makes sense and is relatively cheap currently."
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ps
If you had put 10% of your portfolio in gold at the top in 1980 (was only there for a few hours so were only a handful of people and would have to have been very unlucky) and the rest in blue chip dividend paying stocks, bonds, property and equities then you would have done very well as 90% of their portfolio would have done well and you would have had some financial insurance as well.

Seems like some people EVEN NOW in the worst financial crisis since the Great Depression (and possibly worse) still don't get the crucial concept of DIVERSIFICATION and the entire point of not having all your eggs in any basket.

Would be funny if it was not so tragic.
 
george.shaw said:
Yes sounds like a grand conspiracy of bullion dealers. ;-)
Not sure who is "promoting gold". Are the people who think stocks or property are good investments on other threads "promoting stocks" or "promoting property"?
Are Rabodirect "promoting deposits" when they post on threads re deposits?

Gold is only featured in the Irish media once in a blue moon as the vested interests don't sell it. Gold remains a fringe investment - when Bertie Ahern and taxi drivers starts telling you to buy gold as it is cheap it might be a good time to sell. Or when the Irish Times has a Precious Metals Supplement.

Think I might take Morgan Stanley's advice over Bertie:
Hyperinflation is a possibility, say Morgan Stanley
Kaminska, FT Alphaville
Morgan Stanley's Jocahcim Fels and Spyros Andreopoulos look at the possibility of hyperinflation hitting the western shores of the UK, Europe and the US in their latest note. Their conclusion is a little scary:
" we believe that buying some insurance against the black swan event of high inflation or even hyperinflation makes sense and is relatively cheap currently."
[broken link removed]
ps
If you had put 10% of your portfolio in gold at the top in 1980 (was only there for a few hours so were only a handful of people and would have to have been very unlucky) and the rest in blue chip dividend paying stocks, bonds, property and equities then you would have done very well as 90% of their portfolio would have done well and you would have had some financial insurance as well.

Seems like some people EVEN NOW in the worst financial crisis since the Great Depression (and possibly worse) still don't get the crucial concept of DIVERSIFICATION and the entire point of not having all your eggs in any basket.

Would be funny if it was not so tragic.
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Strange post. I was not aware that diversification meant having gold in a portfolio; and any portfolio that did not have gold was not diversified (which appears to be the corrollary of your penultimate paragraph).
 
Strange days indeed Askar. Most peculiar Mama.
;-)
Most risk averse investors and people who know anything about economic and monetary history would accept that gold is a defensive asset and that thus with growing fears of hyperinflation it might make sense to have some gold, along with other more defensive assets - cash- Swiss francs, Singapore dollars, short dated AAA rated government bonds etc. in a portfolio.

Clearly all our eggs were in the property and equities basket and might be good to have in a number of different asset classes (especially ones that are not correlated such as gold).

Rather than continually bashing gold (in a somewhat uninformed manner) and people who think it makes sense to diversify into gold can you give us your esteemed opinion as to what Irish people should do to protect themselves from the coming likely Depression?
 
I think gold does make an excellent defensive tool and I feel it has a part to play in most portfolios.

There are plenty of indicators to suggest that people who stock up on gold now could really reap the benefits.

For defending purchasing power it is proven through out history to do so. For those looking for appreciation in the value, it could prove an excellent prudent investment.

However, I do have a few problems with gold which may be worth bearing in mind and debating;

1. You can't use other people's money to purchase gold (eg. using a mortgage from a bank like you can with property which would decrease your risk exposure and limits you to the benefits of owning fixed rate debt in an inflationary environment). I suppose you could use leveraging, but there are too many unfavourable terms.

2. Gold doesn't produce regular income in the form of dividends or rental payments. Therefore, the investor is relying on appreciation. While very likely to happen, there are no sure things (except death and taxes!!).

3. Storage of gold could make you vulnerable to counter party risk. While you may own the gold, it is likely you will need someone to store it for you, especially if you own large quantities. There is the risk of counterparty risk, as well as the storage fees.

4. In times of high inflation and downturns, authorities may confiscate the gold from citizens for 'the good of the nation' like they did to American citizens in the 1930s, rendering it illegal and unpatriotic to own gold.

5. Gold doesn't entitle the owner to some of the tax breaks which other investments such as property can offer.
 
Armada said:
Eddie Hobbs on TV3's Ireland Am this morning advising people to invest in Gold. Is that good or bad??

;)
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Probably bad, but I see us as a tiny market anyway, so maybe when New York cabbies tell you gold is a sure thing, that's when you get out. Or even better, when Maria Bartaromo of CNBC says gold is going to the moon (as she did with the Nasdaq in early 2000), it's definetly time to run for the hills.

The guy who said gold buyers on this thread have hidden agendas...ffs man, we're trying to give people some useful info and opinions, you can take it or leave it :rolleyes:
 
Reading this thread, I get the feeling that a number of contributors are trying to hype gold. The problem with gold, as I see it, is that it's very difficult if not impossible to determine what's a "fair" price for it. At least with an equity, I know that I will get a dividend of X% per annum on my money. If X is more than the rate of interest on deposits (e.g. dividend yield of 7% v deposit interest rate of 4%), then I've to judge whether the dividend can be maintained or increased. In the above example, if I think the dividend can be maintained, then it's worth giving serious consideration to the equity investment. I don't know of how you can make a corresponding calculation for gold. In fact, the opposite seems to be the case: if you buy gold, you don't earn any income on it but you have to pay for the cost of storing it (or insuring it if you keep it at home).
 
Carramore said:
Reading this thread, I get the feeling that a number of contributors are trying to hype gold. The problem with gold, as I see it, is that it's very difficult if not impossible to determine what's a "fair" price for it. At least with an equity, I know that I will get a dividend of X% per annum on my money. If X is more than the rate of interest on deposits (e.g. dividend yield of 7% v deposit interest rate of 4%), then I've to judge whether the dividend can be maintained or increased. In the above example, if I think the dividend can be maintained, then it's worth giving serious consideration to the equity investment. I don't know of how you can make a corresponding calculation for gold. In fact, the opposite seems to be the case: if you buy gold, you don't earn any income on it but you have to pay for the cost of storing it (or insuring it if you keep it at home).
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You seem to be basing your investment decision purely on dividends, and not factoring in any possible capital gain/loss. This would have led you to invest in bank shares 24+ months ago, when dividends were steadily rising; but now, most banks have pretty much frozen dividend payments.

There are also plenty of companies that do not pay any dividends at all, but rather reinvest all profits in the company. Using your argument, it would be impossible to value those company stocks. Every investor should be using some way of putting a value to whatever he/she is investing in. But basing investment decisions purely on the dividend payments is pretty risky business, in my opinion.
 
well said Chris.

those that owned "blue chip" Irish stocks and particularly bank stocks have seen their principle (entire value of their investment) drop by more than 80% in many cases.

dividends of 1% to 10% are not worth that much to you if your shares have fallen by 80%.

investing should never be about whither or not my asset class is better than yours but about real prudent asset allocation amongst a range of asset classes and real DIVERSIFICATION.

nobody is saying sell everything and buy gold - just that would be a good and sensible idea to have one asset class in a portfolio that is not correlated to equities, bonds and property.

are those who continually feel the need to bash gold some of the same people who told us Irish shares and property were not bubbles and not to "talk the economy down"?
 
Hi George and Chris. I agree that you should not base an investment decision on the basis of historic running dividend yield. Note that I added the very important qualification of judging if the dividend can be maintained. In relation to the point about companies that don't pay dividends, you can project their earnings over time, and allow for the eventual payment of dividends. My core argument in the context of a discussion on gold as an investment was that you must have some objective benchmark against which to determine whether the current price represents good or bad value. The fact that the price of a particular asset class went up by 10% or 20% in the last year, 6 months or whatever is irrelevant to whether it will fall or rise in future. Some of the arguments now being advanced in favour of gold as an investment, on the basis of historic performance, are redolent of those advanced a few years ago in favour of property in Ireland. Yet a review of fundamentals, in the form of comparing the cost of renting a property with the price of buying it, would have demonstrated that Irish property was a very bad buy at that time. Gold may or may not be a good investment at the present time. The problem is that I'm not aware of a benchmark against which to determine whether it is or not.

Warren Buffet once said that an investment decision should be made on the assumption that you will hold the stock/ commodity for ever. If you hold gold for ever, all you'll have is a massive loss in the form of the cost of storing it.
 
If we define a "good investment" simply as something with the potential for growth - then the answer to this question is always going to be no, by definition.
Gold is finite and does not produce anything so why own it?

In this respect Carramore is absolutely correct we need a benchmark against which to determine the benefit of holding gold in a portfolio.

Equities have a positive expected return over time because of the underlying growth associated with capitalism. An investment in equities allows you to share directly in this growth over time. However, an investment in equities is risky and is often associated with periods of steep declines.

A high degree of volatility in a portfolio does not always produce the highest return and many investors would be better off with a more steady return over time. This is achieved by investing in a wide range of different assets to reduce the wide swings in value in the portfolio or diversification.

The process of diversification in investment terms is the closest thing to a "free lunch" that investors have.

Gold pays no interest or dividend so why buy it?

In my view the reason to hold gold in a portfolio is more about what it isn't than about what it is. For a start it isn't someone else's liability, it isn't a financial instrument a bond,debenture, stock certificate etc - it is a finite physical entity and governments cannot simply "print" more of it.

The value is therefore purely a factor of supply and demand. Nothing more, nothing less. In every case, for me to make a profit, someone else has to pay more for my gold.

The issue is therefore, what would cause the price of gold to rise and therefore for me to make a profit? The answer, historically, has been a loss of faith in other assets perhaps arising from high inflation, political risk, war etc.

I actually don't believe that an investor needs to even consider the current price of gold in this decision process. Since in my view the decision to own gold isn't about speculation around the future price of gold. I know I can't predict the price, but I can predict the effects of ownership. The current price I pay is irrelevant to the decision to own gold - it is the reason that I purchase that matters and that reason is the opposite of speculation.

The opposite of speculation is hedging and it is for this reason that a prudent investor would own gold in their portfolio.

Gold is shown to consistently have a very weak or negative correlation with other assets. In other words, if the price of gold is going up, you can be pretty sure that it is because the price of your other assets is going down. In other words sellers of assets such as equities have to put the proceeds of the sale somewhere, and often, they turn to gold at times of financial stress.

Equally, the price of gold is volatile - actually since 1971 it has been about as volatile as equities with an annual standard deviation (a measure of volatility and shorthand for risk) of about 20% roughly the same as Global Equities.

This is great news! In order to benefit from diversification I need something that reacts. If equities are going down fast, I need something that will make a difference in my portfolio. It is no good attempting to offset a 20% or 30% drop in equities with a 1% or 2% increase in something else.

Gold is therefore a form of insurance within a portfolio. As an investor I want to hold equities because they offer the highest expected return over the long term. However, I also want to diversify my portfolio to reduce volatility. The last year has shown that diversifying my portfolio of equities around different countries has not reduced the losses - I need something else in my portfolio to offset the risk of holding equities in the really bad years.

How well does gold do this? By way of illustration, let's have a look at the last 12 months:

Correlations in Euro Currency
Monthly data 1/2008 – 12/2008

...........................MSCI Europe Index MSCI World Index FTSE All Share MSCI Emerging Markets MSCI Pacific Ex Japan S&P Global Property Index S&P 500 Gold In Euro
MSCI Europe Index .......1.0
MSCI World Index......... 0.956..................... 1.0
FTSE All Share .............0.910..................... 0.943.............. 1.0
MSCI Emerging Markets. 0.933...................... 0.845.............. 0.824.................. 1.0
MSCI Pacific Ex Japan... 0.953...................... 0.915.............. 0.901................... 0.965.................. 1.0
S&P Global Property Index.0.843................... 0.834............... 0.692................... 0.804.................. 0.803......................... 1.0
S&P 500...................... 0.824..................... 0.947.............. 0.865................... 0.641................... 0.747......................... 0.772................. 1.0
Gold In Euro................. -0.567.................. -0.617............. -0.721...................-0.459................. -0.602........................ -0.315................ -0.58.......... 1.0

A correlation figure of “1” means that the markets are moving hand-in-hand perfectly and there is no diversification benefit. Obviously an investment is perfectly correlated with itself. A Correlation figure of -1 means that there is no relationship at all between the investments and a very high degree of benefit is being achieved from diversification between the investments.

The table clearly shows that spreading equity investments around developed economies did not result in a particularly high degree of diversification last year. Results of 0.95 or 0.93 suggest a very high degree of correlation between developed markets. Even the S&P Global Property index was relatively highly correlated with developed equity markets over this period and would not have offered investors much of a safe haven.

An investment in Gold by contrast exhibits a negative correlation with other investments suggesting a much greater diversification benefit for an investor during the difficult market conditions of 2008.

So as an investor who holds equities should permenantly hedge their position with an allocation to gold. By permenantly, I mean if you decide to hold 5% in gold, keep the allocation at 5% every year.

An investor who followed this approach would have been selling equities and property in 2006 and 2007 and buying gold to keep the proportions in their portfolio constant. Not a bad strategy to have followed.........
 
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