Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

In Defense of Gold… and “Gold Bugs”

Commodities / Gold and Silver 2013 Jul 06, 2013 - 04:47 PM GMT

By: Investment_U

Commodities

Mark Skousen writes: “Gold isn’t such a hot inflation hedge.”- Alexander Green

In his July 1 Investment U column, “Why You Still Shouldn’t Listen to Gold Bugs,” Alex Green made the bold statement that gold has been a lousy inflation hedge.

He wrote, “It hit a high of $875 an ounce in January 1980. And even though we experienced double-digit inflation that year, it lost a third of its value by Dec. 31. And it kept dropping for almost 20 years.


Gold bugs who purchased gold at the high 33.5 years ago still haven’t broken even in inflation-adjusted terms. Heck, they still hadn’t even broken even when gold peaked above $1,900. If that’s an inflation hedge, I’m Woodrow Wilson.”

Alex argued that investors should choose stocks over gold. Stocks, he said, are a “genuine inflation hedge.”

Gold and Inflation
I agree with Alex on one thing: Stocks are a superior inflation hedge over the long run because they represent a growing economy.

U.S. stock indexes have outperformed gold by a long shot (although I should add that a sharp rise in inflation can hurt stocks for years – witness the 1970s and early 2000s).

But I think he’s wrong about gold as a long-term inflation hedge. Granted, if somebody had the misfortune of buying gold at the top at $875 an ounce in 1980, or $1,900 in 2011, his investment has indeed proved to be a lousy bet.

Yet if a smart investor had bought gold at $35 an ounce in 1970, as Harry Browne and other astute gold bugs recommended back then, today’s price of $1,240 an ounce doesn’t look too bad – it presents a 34-fold increase over a 43-year period.

Gold has traditionally held its purchasing power over long periods of time. The classic study on the subject is The Golden Constant, 1560-1976, by Professor Roy Jastram, and updated through 2007 by the World Gold Council. The following purchasing power of gold chart demonstrates how the yellow metal has done over the long term:

There are two things to notice about this chart. First, between 1792 and 1971, the long-term purchasing power trend for gold was relatively flat (around 1.0 on the chart). Jeremy Siegel comes to the same conclusion in his Stocks for the Long Run.

Second, since 1971, when the world went off the international gold standard, gold has become an outstanding inflation hedge. Since 1971, it has done a lot better, despite its volatility.

Benefits of Gold
According to the chart, gold at $1,240 an ounce today has grown approximately 3.3 times its real value since 1971. Of course, U.S. stock indexes have done even better, but gold is no slouch.

Another benefit of investing in precious metals is that they offer a wonderful forced savings plan. Over the years, I’ve asked audiences at investment conferences (including the annual Investment U conference) how many of them have purchased gold and silver coins. Usually about half the people raise their hands.

Then I ask, “How many have sold any gold or silver?” Almost every hand goes down. People tend to buy coins, but not sell them because of the hassle and tax implications.

You can’t say the same about stocks, which people buy and sell like crazy.

Here’s another thing to contemplate: Every piece of gold jewelry or coin ever made still has value. Can you say the same thing about stocks or bonds?

My recommendation: Buy gold and silver coins from a reputable dealer and hold them for the long term as an insurance policy against bad times. But don’t go overboard – invest no more than 5% of your portfolio.

Good investing,

Mark

P. S. As part of FreedomFest 2013 in Las Vegas, John Stossel is taping his Fox Business News show from 7 p.m. to 9 p.m. on Thursday, July 11 in the Celebrity Ballroom at Planet Hollywood. All attendees of FreedomFest will get guaranteed seating up front for the Stossel show. However, we have also reserved about 1,000 free tickets to the general public. If you will be in the Las Vegas area and would like to come to the taping, you need only to email STOSSELTIX@foxbusiness.com with the subject line, “FREEDOMFEST SHOW TICKETS,” and list the names of anyone who wishes to come.

Source: http://www.investmentu.com/2013/July/in-defense-of-gold.html

http://www.investmentu.com

Copyright © 1999 - 2013 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules