Let’s put things in perspective, shall we? Many people are now realizing the power of precious metals-specifically gold. But, while I encourage you to learn more about it, I also urge you to keep things in perspective.
Gold is not an investment, at least, not a serious one. It is a way to preserve the value of your savings. For example: In 1900, before America was taken off all remnants of a gold standard, gold was $20 an ounce. Today, it flirts with $1,200 per oz. That’s an effective long-term yield of 3.83%. Over the short-term, gold does rise and fall substantially. I’m not saying you can’t make money off of it if you follow the trends. You can. However, the long-term trend is that it stays relatively flat, or produces a low yield. This is entirely consistent with the function of gold as money, rather than as an investment.
Some other facts to consider:
Depending on how you calculate the value of the dollar, $1 million in the year 1900 was equal to (or is equal to):
$24,766,584.77 using the Consumer price index,
$21,224,697.05 using the GDP deflator,
$114,128,571.43 using the unskilled wage,
$162,813,054.25 using the nominal GDP per capita,
$641,531,874.47 using the relative share of GDP,
as of 2006 (according to the nice folks at Wikipedia). As the value of the dollar decreases over time due to the inflation of the currency (the printing of money), the less valuable it gets. Contrast this with gold, which holds its value over time-relatively speaking.
The point I’m trying to make is that a balanced approach to savings is probably the smartest approach. If you try to become rich using only dollar-based investments, you are chasing after a target that is constantly moving farther and farther away from you.
However, if you use gold, you are not going ot get the appreciation in your savings that a dollar-based investment can give you.
There are two major ways the economy in America can end: America goes through a hyper-inflationary depression, in which the U.S. dollar is inflated out of existence. Or, the economy goes through a deflationary depression, in which case the dollar strengthens.
If you are purchasing gold with today’s dollars, you had better hope that the U.S. doesn’t go through a deflationary depression. Otherwise, you will have lost real value by purchasing gold as the dollar begins to strengthen. On the other hand, you don’t want to be holding too many dollars if the economy goes through a hyper-inflationary depression either, since those dollars will be worthless.
What does one do? This is where the services of a good financial planner can be useful, because there are rational ways to approach this problem.
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_________________________This entry was posted on August 28th, 2012 by David. Edits may have been made to keep this entry current. · No Comments · Asset Preservation, Insurance & Savings