The End of Cheap $1000 Gold?
Today’s guest post comes from Bruce, CEO of Superior Gold.
Last year I wrote an article for Living Off Dividends & Passive Income outlining 10 reasons why gold would break $1000. It was a conservative estimate at the time, which was achieved later in the year. Since then the Dow has touched 6400 points, many major U.S. banks have collapsed and the U.S. economy is searching for sound footing during a recession that may or may not be half way completed.
At the time of my article Gold was around $880 and some good people at LivingOffDividends.com made it seem as though I was predicting an imminent U.S. led invasion of China.
The president of Superior Gold Group thinks I should buy gold? Shocker.
- The Writer’s Coin
Alan Greenspan (Federal Reserve), Jim Cramer (Stock) and Ron Paul (Congressmen) have all recently recommended gold for diversity and protection.
When I invest, I only invest with the long-term in mind, so I’ll never drop any money into gold. It’s too volatile, simply because it relies on the economy and stock market to be in a slump.
- Erick Folgate
I would consider a Dow that swings from 13,000 to 6,500 in 14 months the definition of volatility, but then again I am no stock expert.
These guys have a right to their opinion and I have a right to mine. In the article I mentioned various reasons for Gold’s ascent and those reasons have only strengthened in the past year. Unlike the Wall Street Investment Bankers of now defunct financial powerhouses or Ponzi scheme Billionaires, as the president of the Superior Gold Group I actually have to look at many of my clients face to face. I have a vested interest in making the best analysis of the financial markets so that I can relay them to my clients and guide them into sound financial decisions. On to this year’s predictions:
Gold Prices in 2009
Clearly when you read the charts, government reports or listened to politicians it is clear that the United States and prominent economies around the world are searching for an end to their economic troubles. Gold is headed to $3,000….. or so the Gold bears would love for me to predict so that they can label me a Gold Bug or Gold Zealot ala Harry Dent and his 35,000 Dow projection. I am not in the projection business I am in the wealth protection business.
Any “expert” can make a prediction. At the Superior Gold Group we focus on understanding trends and making conservative projections that allow our clients to maintain a balanced and diversified portfolio that will never consist of 100% exposure of any one single asset class.
Wall Street trained financial planners never discuss physical gold/silver. Real Estate Brokers/Agents never discuss owning physical gold/silver. What they discuss is how this stock or this house will double in X time, but rarely discuss diversity. True diversity is the only way to protect your assets from turbulence and calamity in the markets.
We educate each of our clients on the importance of diversifying their portfolios. You would not believe the amount of American workers and investors that our company has had to console because their IRA and 401(k) are worth 40% less than it was just 18 months ago thanks to a severe deficiency of alternate investment forms.
Why Buy Gold in 2009?
One takes a position in Gold/Silver for many reasons. Just like any other investment, one size never fits all. We have recommended that our clients purchase Gold for wealth protection. Historically, the price of gold “does not change”. In reality, gold remains a constant price in relation to the currency it is compared to. In other words as the dollar gets weaker, the price of gold goes up. The inverse is true as well, but consider this; In 1932, the price of gold was roughly $20 for an ounce of gold. Today that same gold ounce sells for $925 (3/17/09). Gold is the hedge against inflation for your portfolio.
So the decision to own gold is really simple. If you believe that the U.S. Economy is growing, real estate prices are stable and your retirement account is performing smoothly, DON’T BUY GOLD. However, if you like me and countless financial strategist have loudly predicted that economic recovery is years in the making, protect your Portfolio today by taking a position in Gold of at least 10% of your total exposure.
- Bruce Sands.
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April 10th, 2009 at 1:30 pm
Nirav, Bruce’s case for gold is off base. I do agree that gold is a good diversifier in the short term. But its benefit is to protect against an economic calamity, not to provide a long term gain. By going back to 1932 and $20 gold (which became $35 gold in 1933), Bruce just makes the case against owning gold, not for it.
Had one bought the Dow index as stock in 1932, denominated in US dollars, that stock would have appreciated as an asset from $40 at its low, to $8000 today, which is almost 10 times the dollar return of gold (had one been really fortunate or very good at trading, that stock could have been sold for $14,000 in 2007, but that is a different story). In addition, dividends on the Dow index would have returned another 5% annually on average, which over 80 years provides another multiple return of 32 times, using the Rule of 72 for compounding. This makes the total appreciation of Dow stock, 32 x 200 = 6400 times return while gold returned 40 times. The reason for this discrepancy: Gold is a non-productive asset and does not generate any dividends or interest. In fact, physical gold must be stored and protected and can actually cost from 1-2% of its value every year.
So, the long term (80 year) case for gold is very poor. Even a high degree of inflation will be adjusted over time by equally higher wages (wages are a component of inflation, after all). Other assets, like real estate, commodities and stock will also adjust to offset the effects of inflation over time. But I do acknowledge that there is a prospect of inflation in the near term that might provide a case for gold as a Speculation. That is much different than gold as a diversifier.
I do not begrudge anyone their pleasure. If owning gold gives pleasure, then buy some. But it should not be mistaken as an investment because it is not. We are just now getting into a position to have something of a repeat of the 1932 to 2007 equity scenario after suffering the greatest economic decline since the Great Depression. Now would be a great time to put everything into stocks. And if one is worried about inflation, skew the asset allocation towards Basic Industrial Materials, Energy and Ag Commodities, all real assets which will appreciate at least as fast as inflation.