What Gold Can (and Can't) Do For You

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Gold remains in a long term bull market.
While it is true that the price of gold has increased around four fold in the last ten years it still hasn't reached it's previous inflation adjusted high of around $2,300 per ounce.
There have been a number of sound fundamental factors that have brought about this price rise.One is the economic success of the developing economies. This wealth creation has stimulated gold jewelry purchases as well as investment demand for gold. While we have seen a fall off in overall demand in India due to gold's price spikes, Chinese demand has more than made up for this shortfall.
Central Banks have also switched from net sellers to net buyers of gold as they have started to increase their gold reserves. Individual investors and money managers have also been increasing their exposure to gold as a hedge against the financial uncertainty that faces us.
New mine supply is expected to stay at current levels for the foreseeable future. Even the amount of scrap supplies coming into the market ,which at times has spiked, has leveled off.
So we are faced with a situation where the amount of gold is basically fixed while the major world's central banks and governments are flooding the markets with a tsunami of liquidity.They are pouring debt on top of debts that they were unable to pay back in the first place. Anyone who owns a calculator should know that this is unsustainable.
A few short months ago the world view was that the dollar would continue to lose value due to the absurd fiscal situation that the US is faced with. However, due to the "Euro Crisis" the dollar is rallying and the world is begging for US Treasuries. We are witnessing panic buying of the dollar because it is considered the "least worst" alternative. Who in their right mind would lend the US Government money at a fixed rate for 10 or 30 years given that the US is more or less bankrupt?
As always, the most important question is where does the price of gold go from here. In the short term, the gold price will continue to be quite volatile as world wide money flows "slosh" from market to market based on panic reactions to economic developments.
Over the long term the gold price will move to much higher levels as inflation starts to manifest itself. This increase in inflation is inevitable, it is only a question of how severe it will be.
Throughout history gold has always been, and will continue to be, the ultimate store of value.

Brian P. Wills of NJ 12:53PM May 24, 2010

Lucas Finco of CT has it right! The price of gold goes up and down, usually opposing that of the the stock market. Today gold is a valuable commodity, but *tomorrow*? Don't you remember, not long ago, gold was around $300/oz.? What if you bought it today at $1,200, then the stock market stabilized and gold plummeted down to about $300 again? Your feelings would sink along with the price of gold.
Consider this: Say you *had* gold today worth thousands of dollars how would you capitalize on that value? Sell the gold? Where? Do you think *you* would get $1,200 per oz.? Again, I ask, *where*? Say you actually owned the metallic gold itself, perhaps as coins or bullion. What would you do with it? Keep it at home? Dangerous. Pay to store it? That would have the effect of your *paying* to own gold, not collecting on it.
I suggest buying the smallest amount of gold bullion you can buy. Then keep it a home just to look at and admire. After all, gold *is* "pretty". Meanwhile *invest* your funds sensibly!

Frank of MI 9:06AM May 21, 2010

No yield? It yielded 75% profit since I bought mine 18 months ago. Only has intrinsic value? Thats the only kind of value that is rock solid, any EXtrinsic value in any investment is simply an emotional premium put on top of solid intrinsic value, and extrinsic value is simply purely speculative and could evaporate instantly, such as how many companies cannot afford to pay dividends anymore.
It is ridiculous how everytime gold is making a new breakout to a new high in a 10 year bull gold market while stocks are crashing....its amazing to see the established fools say its in a bubble. GOLD is the only REAL MONEY on this planet, it cannot be printed and doubled in volume, and in fact is hoarded and decreases in available volume occur on an ongoing basis.
Gold should be valued at $2600 per ounce to make up for all the "extra" us dollars and euros that have been printed out of thin air. There are more dollars chasing the same (or less, due to hoarding) amount of gold. Mine production has been falling for 10 years, new gold is harder to find and more expensive to extract.
If people would stop buying the paper gold junk trading instruments and buy real gold bullion and coins instead, the price would probably exceed $5000 per ounce after the transfers were done.
In 4000 years time, NOT ONE fiat paper money system has ever been successful, and in the same 4000 years time, GOLD has been the only real money on the face of the earth that has endured. Silver is the only real money that compares.
Buy gold and silver and within one year you will have made more than in 10 years of stock ownership.

George King of WA 7:27AM May 19, 2010

It's also performed better than any other "investment" the last 10 years despite articles like these that always come out and try and knock it off its pedestal.
The dollar is in a secular decline because of all the debt and an out of control congress and Federal Reserve that keeps adding more debt.
Right now the dollar is in a cyclical bounce and gold will probably take a breather. Gold will go much higher from there and one better have the "insurance" that gold offers in protecting themselves.
I wrote a book on how to buy gold the right way: http://safelybuygold.com/gc.html

Doug Eberhardt of CA 9:56PM May 18, 2010

The biggest risk: Gold offers no cash flow, unlike a stock or a bond. In that respect, gold is not an investment. As soon as market fear subsides, gold will drop like a rock for precisely this reason. Why own something that has only intrinsic value when you can hold something that returns coupon payment and dividends, as well as capital gains that correspond to the economic rebound?

Lucas Finco of CT 4:01PM May 18, 2010