How does investing in gold work?

Discussion in 'Economics & Trade' started by Daarcand, Aug 24, 2011.

  1. L_Ron_Paul

    L_Ron_Paul Member

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    Gold is a poor long-term investment. It's a terrible inflation hedge, first of all. Look at, for example, the period between 1982 and 2000 or the period between 2013 and 2019. We had inflation, albeit low, during those periods. What did gold do? It dropped, meaning that it failed to keep up with inflation by definition. And since gold is just an object with no cash flows or dividends that means you would have been in the red for a long time before breaking even, much less profiting.

    For those who still do want exposure to gold, an ETF like GLD or IAU is the best option...retail gets so screwed over buying physical on both the buy and sell sides. Unless you are buying really large amounts it is NOT worth it. If you still insist on it, gold is one of those things where - unlike the stock market, where you can DCA into a falling market and still potentially profit through dividends - timing is really key. You would want to buy gold when there is a broad market crash because the Fed will eventually step in to stabilize credit markets, which gets the hoi polloi watching CNBC riled up about hyperinflation. The ensuing hyperinflation never occurs, but retail gets scared enough to bid up the price of the shiny metal so that they can sell to a greater fool. When the Fed gives guidance about an optimistic economic outlook that would necessitate raising interest rates, you sell your gold immediately.

    For the long-term the only thing that is really going to hedge against inflation well is stocks.
     

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