Is Gold considered as investment or insurance?

[corydorus]

I think the problem is many investor did poorly in stocks long term or recently, and as Gold return is relatively higher, people think is investment. I think is the preservation of value kicking in if you see gold price go higher on average.

Who is not happy when value go up ? It can be anything. And Gold definitely has the Insurance Element. Anything more is Bonus.

Another way to look at it is that Gold is priced in USD which has been weak for few years due to QE. Is not out of expectation price go up.
Furthermore any growing economy has inflation which pushes it higher.

If i have US$100 and i invest in stock and earned US$10 but inflation is 10%, I only achieve preservation. Thus if we do investment, we need to make sure our return beats preservation absolute returns long run. Maybe we can use gold average return as a guide for preservation standard.


Cory

[Musicwhiz]

I think the problem is many investor did poorly in stocks long term or recently, and as Gold return is relatively higher, people think is investment. I think is the preservation of value kicking in if you see gold price go higher on average.

Who is not happy when value go up ? It can be anything. And Gold definitely has the Insurance Element. Anything more is Bonus.

Another way to look at it is that Gold is priced in USD which has been weak for few years due to QE. Is not out of expectation price go up.
Furthermore any growing economy has inflation which pushes it higher.

I think perhaps I should clarify something - I go by the "academic" definition of an investment as being an asset which generates cash flows. So far the views presented in this thread mention insurance, store of value etc which are all very valid. But coming from the perspective of bringing in cash flows, obviously Gold falls quite short.

But if we look at it in terms of a store of wealth and possibly to beat inflation through the years, Gold may present itself as a viable choice. Of course, I had overlooked the fact that USD is also depreciating (now USD 1 to 1.218 SGD) and so the value would go up similar to oil.

But then again I am quite poor with stuff like Gold, Silver and commodities, so perhaps take what I say with a pinch of salt. Hehe.

[D123]

For those who follow Paul Krugman's blog, you might already have read this. For those who do not, here's a blog post on gold that is well worth 5 minutes of your time.

Link: http://streetlightblog.blogspot.com/2011...-gold.html

Excerpt:
"It's also conceivable that a good advertising campaign by gold producers could be enough to move the price of gold. Imagine that an effective, sustained advertising campaign, targeted at wealthy, conservative individuals in the US, is able to persuade 25,000 of them per month to switch a portion of their financial assets into gold. (Note that the target audience would be those roughly 3 million US households that have over $1 million in financial assets.) Suppose for the sake of argument that each of them is persuaded to shift just 5%, or $50,000, of their portfolio into gold. Such an advertising campaign would have the effect of pushing $15 bn per year into the market for investment gold -- very possibly enough to have a significant impact on the price of gold, given how small the overall market for gold is.

Note that a very similar thing happened to the market for diamonds in the middle of the 20th century. The DeBeers diamond cartel used an incredibly successful advertising campaign in the 1950s to cement the idea of the diamond as the premier gemstone, and in so doing permanently changed the value of diamonds."

Credits go to Krugman's NYT blog and The Street Light.

[corydorus]

D123, thanks. This article keeps me thinking for a while.

I notice around 2006-2008, Inflation(I assume based on USD) and Gold kind of decoupled suddenly in the Chart. They were following closely for like 26 years which as far as the chart could show but the author choose to conclude based on the last few years of decoupling which i find curious.

If we look at AUDUSD=X chart, (a Commodity currency) there is also a similar 2006-2008 steep AUD strength against USD which follow the pattern of gold price increase.

In 2008 AUD dives, Gold and USD strengthen together due to uncertainty.

After 2008, QEs came in, USD starts to weaken. Gold continues to strength together with AUD.

All this seems to match to the chart you have linked coincidentally.

Conclusion i have is that gold price increase due to few factors.

1. Weak USD. (Alot of gold is bought outside US.)
2. Strong Economy/Commodity Growth outside US.


Cory

[three0033]

Is gold that great of an investment? I always hear late night infomercials advertising gold investment. Yes it is a hard currency...but does that make a great investment vehicle?

[Jared Seah]

Good question three0033!

Let's have some fun with statistical data mining.

I goggled the below facts:

Dec 2003 - Gold = USD 400; while the USD/SGD exchange rate is 1.71; and STI is 1730

Jul 2011 - Gold = USD 1600; while USD/SGD is now 1.22; and STI is 3120 (all the figures are rounded-up for simplicity)

I choose end 2003 since it's around the time where I've bought by 3 room HDB resale flat. Let's assume no leverage. I invest SGD 100,000 each to buy HDB, buy gold, buy stocks. (I did not own gold; only HDB and stocks)

Result is that both HDB and Gold tripled in SGD terms, while my personal stock portfolio did not, just like the STI... (if you are US citizen, Gold is a 4 bagger!)

So is stocks not a good as investment? No. It simply shows I am lousy as a stock picker

Maybe the question is not about which vehicle to ride; but more about the driving skills of the individual

Or how we can manipulate statistics to fit our sales pitch. By using different time horizons, I am sure you can show property outperforms gold and stocks, and the same goes for equities. LOL!

Yup, I wished I had bought gold at USD 500 when the straits times wrote an article about a Singaporean who poured all his SGD500,000 savings into gold in 2004! Anyone else remember that article?

[Musicwhiz]

Yup, I wished I had bought bold at USD 500 when the straits times wrote an article about a Singaporean who poured all his SGD500,000 savings into gold in 2004! Anyone else remember that article?

Hindsight is always perfect haha! Frankly, I don't recall the "good" stories, but I do know of many friends who got burnt in equities during the 2008-2009 bear market, and who have yet to recover. And there are also some horrors stories out there of those who got burnt in property in 1997-1998. I tend to remember these rather than those with a happy ending - I have a tendency to protect my downside rather than actively seek upside!

[Jared Seah]

Hey MW,

We can be excellent co-drivers! You take care of the downside risks, while I take care of unbridled optimism!

Wait! On 2nd thought, you won't want me as co-driver... I drive using the rear-view mirror. LOL!

[Temperament]

Hey MW,

We can be excellent co-drivers! You take care of the downside risks, while I take care of unbridled optimism!

Wait! On 2nd thought, you won't want me as co-driver... I drive using the rear-view mirror. LOL!

Hi SMOL & MW,

We seems to meet everywhere, Ha! Ha!

All things being equal, when you buy is important, but when you need to sell is even more important.
Example, my wife's great, great granny own a lot of land in Yio Chu Kang just after the Japanese Gov's time. During those days, those land were not valuable at all. All her children were earning a normal living then. About 35 years ago my wife's GG. granny's family decided to sell the land and split the proceed. All the sons of my wife's GG granny suddenly become millionaires overnight.
Now, just imagine if only they need to sell the land now. Wow!
So when you need to sell is very important.

i don't believe in buying gold now.
i also quite reluctant to sell gold now.
The reason is i want to choose when i want to sell but hopefully never at the time of need. Ha! Ha!
So it is with everything.
That's what i believe is the best for me, if i can.

[Jared Seah]

Hello Temperament,

Hey! Your wife's GG granny situation proves that my grandmother's friend story is true. I found out that Queenstown was also a swampy place and former grave site before it was developed as Singapore's first township.

I like to reflect and look back at my mistakes and missed opportunities. It's humbling and keeps me honest. It's not that others were more "lucky" - I had the same opportunities! It's even in the press presented to me on a plate! I either did not have the baxxs to grab them, or I did not have the wisdom to understand them.

In the gold example, gold had doubled from USD250 to USD500. I remember saying to myself gold "looks" toppish. Silly me! A little knowledge is more dangerous than no knowledge at all... I wished I were a little bit more "gong", baxxs a little bigger then. LOL!