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Does the Price of Gold Matter?
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Poor investment returns on gold
Posted by
Paul Konstadt
1/14/2008 11:26:39 AM
Gold has a poor long-term track record as an investment. The price of gold in the US was fixed at the end of WWII and...
Gold has a poor long-term track record as an investment. The price of gold in the US was fixed at the end of WWII and deregulated only in August 1971. Someone who had invested in gold at that time would have had a total return of about 3% per year after inflation from then until now.
What is more, a typical long-term investment horizon for planning purposes is five or ten years. Looking back at all of the possible five or ten year periods between then and now, an investor would have actually lost money after inflation in about 51% of the possible periods. (Short-term investments have a better batting average -- 53% positive in the hypothetical cost-free environment of predictive models.)
I cannot be a primary source on this subject but I can show you how to do the calculations from primary sources for prices and inflation. I have no data on, and know of no sources for, accurate cost and tax implication data.
Paul Konstadt
S&P
Boston
(Footnote: Price of gold prior to 1971 is assumed to be the official convertibility rate of $35/ounce. After 1971 it is the average monthly London fixing price as recorded at gold.com. Prices are adjusted for inflation as represented by the US CPI monthly all urban consumers series. Returns are not adjusted for taxes, or for brokerage, custody, storage or insurance costs. Those costs can vary considerably and generally have a material impact on net realized returns. Past performance does not assure future results.)
Your readers should think about gold MINING STOCKS
Posted by
REG CROWDER
1/14/2008 7:34:14 AM
Al, basically, you're right. The miner's canary analogy is a good one.
I am concerned that just discussing gold itself as an investment might...
Al, basically, you're right. The miner's canary analogy is a good one.
I am concerned that just discussing gold itself as an investment might steer readers in the direction of looking only into direct investment in gold and gold items of value such as coins and jewelry.
There is one problem with gold as an investment: It never pays interest or dividends.
Middle-income families worried about the imploding US dollar might consider investing in the stocks of gold mining companies. That way, you get MOST of the upside when gold goes up and SOME income when gold goes down. Gold mining companies constantly reposition themselves to remain profitable, regardless of what is going on with the price of gold. (They've seen it all before.)
A SAFER bet would be an Exchange Traded Fund (ETF) specializing in the stocks of companies that mine precious resources, including gold, silver, platinum, diamonds, etc. ETFs carry with them all the benefits of mutual funds but without the high fees and commissions.
Now that ETFs have matured, there isn't much excuse any more for putting money into a conventional Mutual Fund. On the other hand, if you're in an employer-sponsored defined-contributon plan that pays all or most of the fees and commissions, that puts Mutual Funds back on the menu.
All the best.
REG CROWDER
Freelance Financial Journalist
LONDON, UK & BRITTANY, France
http://www.sourcewire.com/journalist/jd_view.php?id=TgTQ
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