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When is a good time to invest in gold?

What are situations likely to trigger a drop in gold prices?

What are alternatives to gold?

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    Voted to close per FAQ prohibition on "Requests for specific buy/sell advice" – JohnFx Aug 14 '11 at 17:52
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    Personally, I don't see this as asking for specific buy/sell advice. I am concerned that it is rather broad and possibly difficult to answer objectively or, at least, without stirring up some debate. That said, I feel like there are some basic principles that are generally accepted and could be a good answer. – George Marian Aug 15 '11 at 8:25
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A good time to invest in gold WAS about ten years ago, when it had reached a 20-year bottom around $300 an ounce. That's when I was buying (gold stocks, not physical gold).

Since then, it's gone up 5-6 times in ten years. It might continue to go up of course, but it also has long way down to go, because it has come up "too far, too fast." I have since sold my gold stocks.

Alternatives to gold include other metals such as silver and copper (which actually belong in the same chemical family) as well as platinum and palladium. But they, too, have run up a lot in price over the past ten years.

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    +1 for a name being the symbol for gold. That's pretty cool. – JTP - Apologise to Monica Aug 14 '11 at 20:25
  • @Joe: Value Line made me their junior gold analyst years ago because of my last name. There, I met a guy named John Rubino who's also a big gold bug. – Tom Au Aug 14 '11 at 20:26
  • Have you sold your position yet? – WeNeedAnswers Jun 7 '12 at 0:51
  • @WeNeedAnswers: I said I had (when I wrote this almost a year ago). But am buying back now. – Tom Au Jun 8 '12 at 15:42
  • You did well if you sold back in August 2011. :) – WeNeedAnswers Jun 8 '12 at 15:44
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Gold is a good investment when central bank money printers can’t take their thumbs off the print button.

Over the last 3 years the US Federal Reserve printed a ton of dollars to bail out banks and to purchase US federal debt.

Maybe I should exchange my dollars for euros?

The European Central Bank (ECB) is following the FED plan and printing money to buy Greek, Italian, and now Spanish bonds. This, indirectly, is a bailout of French and German banks.

Maybe I should exchange my euros for yen?

The Bank Of Japan (Japan’s central bank) is determined not to let the yen rise against other currencies so they too are printing money to keep the yen weak.

Maybe I should exchange my yen for swiss francs?

The Swiss National Bank (Switzerland’s central bank) is also determined not to let the franc rise against other currencies so they too are printing money.

You quickly begin to realize that your options are dwindling for places to put your money where the government central bank isn’t working hard to dilute your savings.

Physical gold is also a good investment for several other situations:

  1. When you own a gold coin you own an asset with zero liability. You are independent of any third party (central bank, investment bank, retail bank, etc.) for the value of your asset as well as access to your asset.
  2. Gold is harder to trace. When the criminal class (i.e. government) comes looking for money to steal, money in bank and retirement accounts is easily identified and accessible by government. Physical gold, kept in one’s possession, is much harder to confiscate. The government’s criminal behavior becomes much more obvious if they raid homes looking for gold. The Chinese in the picture below were rushing to the bank in an attempt to withdraw their gold before the newly elected communist government got their hands on it. Many did not succeed.

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What situations would lead to a drop in gold prices?

  1. No more money printing by central banks. This would dramatically increase interest rates.
  2. End of the monopoly on money issued by central banks. The free market does not choose fiat paper money for a medium of exchange.

What are the alternatives?
Silver has traditionally been used more as money than gold. Silver is usually used for day-to-day purchases while gold is used for savings.

  • never mind of course that storing and dealing with physical gold is a PITA.. Especially since you generally have to pay a several percent comission both to buy and to sell, where as with a stock like GLD you would pay a small fixed fee at a discount broker. OH and regulations that require reporting of large cash transactions that make it very hard to buy or sell any substantial quantity of gold without the government knowing about it anyway. And lastly, since gold is trading at record highs after a big runup, if you buy now, you could very well end up 'buying at the high' – Chuck van der Linden Aug 15 '11 at 20:30
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    I agree that storing physical gold is a pain. Not my desire but I've read enough monetary history to know about bank holidays, frozen bank accounts, and massive inflation to know I should have some assets outside of the banking system. – Muro Aug 16 '11 at 1:01
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    In regards to "buying at the high". I know gold has had a run. But I don't base my investment decisions on something simply going up or something going down. The S&P went up 253% from 1950 - 1960, another 53% from 1960 - 1970, another 17% from 1970 - 1980, another 220% from 1980 - 1990, another 334% from 1990 - 2000. At what point was the runup too big? That's 50 years. – Muro Aug 16 '11 at 1:04
  • at the point the runup in recent years is far above the trend of a far longer prior period, you are often looking at a bubble. In the case of the stock market there has been an overall upward trend, same for housing. The housing bubble is pretty easy to see if you look at a chart like this one. Everyone is going to have their own interpretation of the numbers, but to me if I look at a 35 or 40 year chart of gold prices, the last 6 years is way out of line with the prior 30, and to my eyes, that looks a lot like a bubble. – Chuck van der Linden Aug 16 '11 at 9:23
  • I'm fine with having some assets outside the banking system, but you can't exactly go buy groceries with a krugerand. And given the limited number of places that will trade in gold (and the fee's they charge) if there is some kind of calamity, don't you expect that those who do trade in gold will rapidly run out of anything to pay you with in return for your gold? and in such an event, if a bunch of people holding gold are trying to sell, and nobody is in a position to buy, what is likely to happen to the price? – Chuck van der Linden Aug 16 '11 at 9:33
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I think your question is very difficult to answer because it involves speculation. I think the best article describing why or why not to invest in gold in a recent Motley Fool Article.

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Always a good time to buy gold. Think less in terms of commodities, more in terms of true money that can not be inflated out of existence.

Buy it as cheap as you can, hold it for as long as possible.

The historical graphs never lie and it proves time and time again its a good store of value.

I would never think of it in terms of a speculative bet though. If it does reward you, its because the global currency system is broken. I think its broken, it may reward you. But never expect it to reward you. In the short term (2-3 years), the gold price can be manipulated. In the long term (10 years) less so.

  • In the last hundred years, gold had a good last decade, I'll admit. But long term? Let's see - Dec 1984 about $300 after crashing, great time to buy. S&P has risen 17 fold since then, compared to gold 6X or so. It's "rarely" a good time to buy gold. – JTP - Apologise to Monica Mar 24 '13 at 15:47

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