thoughts on buying gold or silver

maria_bebopAugust 6, 2008

Since the cd interest rates are very low, is it better to buy gold bullion? One of my relatives believes this is the best way to go. He has bought gold coins.


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Gold bullion coins serve a purpose in an overall financial plan, but different from the purpose served by a CD. With a CD you look for SAFE return on investment, where the amount you invest, say 10 thousand or even 100 thousand, is not put at risk, and you know the interest earned on the CD. A CD is a good place to put money you don't need until it falls due, because you will lose a good part of the interest it can earn if you have to cash in early. But it's money you plan to spend in the near future, so you don't want to put it in something risky like stocks which are for the long term -- that's suitable for money you don't need for a few years, so you can afford to have it fluctuate in value because in the end, say, 5 years or more it is likely to be worth a lot more.

Wheree does gold fit in this picture? Gold is sort of an insurance policy against catastrophic losses if (when) the market goes through a major dislocation, or when the economy goes through a period of very high inflation. Gold is around $900 an ounce right now. If things get real bad, and the stock market tanks, and you need money to live you don't want to sell stocks at a loss for living expenses. When things get really bad, gold generally skyrockets in value, so it could reach 5 or even 10 thousand dollars an ounce. That's when you cash in to cover living expenses while you wait out the storm until the stock market goes back up.

That's the basic sensible strategy for buying gold. But some people speculate in gold, and try to figure out when it's going to go up in value, buy some in anticipation, then sell it at a small profit and trade in and out. That's a loser's game because the broker's costs in doing those transactions will eat up most of any profits, and because you really cannot predict which way gold is going to go. Besides, when you buy gold coins, you have to figure out how to store them safely, and that can cost you also.

So the best strategy is to buy some gold, say maybe 5% of your retirement nest egg, and just hold on to it for the long term as an insurance policy against big problems. If you're not comfortable holding coins, you can but mutual funds in gold mining companies, which is a good proxy for gold, and you don't have to worry about where to safeguard your coins.

Right now, by the way, some banks are desperate for cash, and are offering pretty good interest rates. So maybe it's a good time to buy CDs.

    Bookmark   August 6, 2008 at 9:02PM
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In buying bullion, coins or any other form of precious metals, you are speculating that the value will be higher when you sell than is is when you buy. No problem there, but don't put all of your eggs in one basket.

Here is a link that might be useful: Ric Edelman Financial , Home Page

    Bookmark   August 7, 2008 at 2:16PM
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Someone wrote on here or another forum wondering how to go about selling 16 lbs of silver. Turns out it's not so easy. There are a lot of fees involved.

Just be aware of that, and also stay far away from these companies that advertise on TV and in magazines.

    Bookmark   August 8, 2008 at 12:57PM
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modern life interiors

Someone mentioned that gold is at an all time high for buyig.
It might have something to do with the value of the united sttes dollar being low.

Just double check the info before you do anythig.

    Bookmark   August 8, 2008 at 2:09PM
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Hmm, I love watching "Fast Money" on CNBC - crazy day traders! - but Dennis Gartner, who has been a gold bug for the last three years, was on the show today (Fri 8/08) telling host Dylan Radigan that he has completely liquidated his position over the last few months because of the strengthening US dollar. The dollar jumped 3% in two weeks, which is a huge move. One currency trader explained that 3% in a year would be normal. But the same move in a two-week period was highly unusual. He predicted volatile currency fluctuations in the future, similar to what we are seeing in the equity markets.

The reason for the strengthening of the US$ is simple - it is clear that Europe's economy is slowing drastically, they are under the same inflationary pressures as the US, but they are just starting their slowdown whereas the US is already working its way out of it (slowly but surely).

Now if your relative had been buying gold back when it was $400 an ounce, that would have been an interesting move. But at a time when gold has dropped from over $1K/oz to around $857/oz....the math tells the story. And as housenewbie mentions, the fees for cashing them in are rather hefty.

Commodities - which is what gold and other metals are - is a whole 'nother ballgame compared to stocks. Amateurs can get into a lot of trouble trying to pit themselves against the pros. I'm not saying it can't be done, but you really do have to know what you're doing.

    Bookmark   August 8, 2008 at 11:33PM
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I was all set to buy gold at around $275... I think that was 6 years ago. The Iraq war worried me, and I believe $275 is historically I thought, how much could I lose?

A friend of mine calls me and gives me a scary story about gold and the high fees associated with it, so I froze up and didn't buy.


The next time gold drops near those levels, I am going to be interested... if it ever does.

So where are the right places to buy gold bullion?

    Bookmark   August 10, 2008 at 3:32PM
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It's good to have some money in gold as a hedge against inflation.

But now is definitely NOT the time to buy. Why do you think there are so many advertisements right now, trying to convince the public to 'invest' in gold? Because it's at an extremely high price. You won't make any money if you buy now, and the economy straightens out (which it will, in the next year or so) and the value of gold goes back to a more reasonable $400-500-600/ounce? If you buy at $900+, you're going to lose a LOT of money.

For now, put your money places where it will be safe, and at least not lose value.

And remember, the way to make money is 'buy low; sell high', NOT 'buy high and sell low'. So look around, see what you can buy that's a bargain, but still a solid investment--that's the way to make money

    Bookmark   August 10, 2008 at 9:01PM
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Gold is not a wise investment for the unsophisticated investor, or for people of limited means.

    Bookmark   August 11, 2008 at 1:11AM
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Addition to kudzu9's statement: Gold is a single commodity, and commodities are a single asset category. Unless you can explain why you think it's a good idea to be investing preferentially in a single component of a single asset category, you probably shouldn't do it.

Saying "because I think it will go up" is not an explanation, because today's price already takes into account the future expectations of all investors. So to be useful, an explanation must also explain what you know about the likely future that all the other investors don't.

    Bookmark   August 12, 2008 at 8:13PM
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In January 1980, gold was selling for $850 ounce and the Dow Jones Industrial Average was at about 800 (that's eight hundred, not thousand). SO, what would have been a better investment, putting $850 in the stock market or buying an ounce of gold?

Well, today, the Dow Jones Industrial Average closed at 11,532. Quite a nice little gain from 800.

Gold closed at $831.50.

Uh oh.

    Bookmark   August 13, 2008 at 8:26PM
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And there it goes - bye-bye!

Yesterday Aug 19th: Gold traded in London at $788.75 per troy ounce, down from $796.25 late Monday 8/18/2008.

In a nutshell this is why most people make poor investors. They buy high and sell low, rather than the other way around. If you are only getting your financial news from the 30-second headlines of popular media, you are always going to come out on the losing end of investing because you are following popular trends; instead of having a sound investment policy which includes diversified allocation, and sticking to it.

    Bookmark   August 20, 2008 at 12:01PM
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Personally I don't think holding bullion is all that good an investment at all.

I looked at investing in bullion some years ago, and made a different choice.

I invested in precious metals mutual funds.

The returns on several of them have been VERY gratifying.

    Bookmark   August 20, 2008 at 4:06PM
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>>I looked at investing in bullion some years ago, and made a different choice. Precisely the point I was trying to make - do research before investing in a new market sector, and make the choice appropriate for your own risk tolerance and investing strategy!

    Bookmark   August 20, 2008 at 9:50PM
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If you buy bullion, you have a choice: leave it with the holding agency ... in which case they charge storage fees.

Or ... take it home. In which case, it must be weighed and assayed (tested for purity) before it's sent to you ... by expensive carrier (unless you go pick it up).

When you sell ... costs to deliver ... plus assay ... plus costs of weighing.


Somwhat less complicated with coins, I think - as there's less concern re weight and assay ... but I think that coins usually cost a premium price over bullion ... but I could be wrong on that.

Buying and holding gold is not a simple exercise.

Rather than buying a gold mutual fund, though, do your research and buy some individual stocks directly - there are some good ones.

If you buy a mutual fund and the manager succeeds in equalling the growth rate of the market averages, that's around 6% (possibly up to 8 - 10% or so) - but very few of them are able to achieve that rate of return/growth - you still have some problems.

The income tax people want, how much - 20% of your income? That cuts your rate of return by almost 1%.

And the mutual fund manager wants his pay, usually about 1.5% in the U.S., (more like 2.5% or more in Canada). In many situations, that's more than you're paying the income tax people ... maybe up near twice as much?

Plus, many of the fund managers buy and sell a lot ... and guess who pays the buying and selling commissions, plus general costs of operating their fund?

The income tax people get theirs (though part of theirs may be delayed till the fund is sold).

The mutual fund manager gets his, a percentage of the total asset - whether he makes much growth, or not.

Some of the difference between initial value and current value as stated is lost to inflation, as well: inflation gets part of the value, as well.

You get ... what's left.

Good luck!

Can you get rid of income tax? No. Though there may be ways to arrange to pay at a lower rate .. or defer till later.

Can you get rid of inflation? Not since the Dirty Thirties ... and who wants to go back there (though we may, like it or not).

Can you get rid of the mutual fund manager's fees? Your choice ... does s/he pay his/her way?

Can you do better on your own?


ole joyful

    Bookmark   August 21, 2008 at 7:24AM
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Take a look at the returns on the Fidelity and Vanguard precious metals funds for the last several years.

I've got money in both of them. Growth has been FAR in excess of 6 or even 8 percent.

    Bookmark   August 27, 2008 at 11:14AM
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I've got some metals, but I had them for decades. About 1200 oz of silver bought at $5 per oz and some scrap gold. No one can tell for sure if gold is too high or too low to buy. But if push comes to shove I'd say gold will be higher down the road as our world decomposes around us.

Gold is good for those worried about inflation hedges. Used to be the fed at least printed money. Now all that needs to be done to create billions is to magnetize a silicon chip. This is what fuels the hard commodity people that want something tangible for real wealth.

But it all revolves around our world not crumbling too much, as gold can be near worthless too. Would you rather have a sack of gold in the desert or a sack of bottled of water?

Let me tell you people in need don't want gold they want water, food and shelter and warm, dry clothes.

Try cig lighters, seeds, 22 ammo, matches, sewing needles, soap, etc., for barter.

You know sewing needles, fishhooks and 22 LR can't be made easily at home.

22 LR may be the small change currency of our future...not bars of gold and silver.

What you going to buy anyway when TEOTWAK arrives? A new Ferrari? A vacation home that you can't get to?

And gold is so high priced it is not that practical for small change transactions... "I'll trade a banana for your Krugerrand?" Well, maybe bananas are a bad example as they may become scarce as they need to be shipped in with crude sucking tankers.

Many areas of free barter items that run through our hands. We go through tons of seeds in a year and they would make good barter items and we get em for free in our food. Especially the high seeds yielding squashes and melons seeds.

Another for free area of barter goods is the disposable plastic bottles we drink from. Our family goes though 20 - 25 bottles a week. They can be saved if one has the room (which we don't) and used for barter if need be. (People will need empty bottles.)

Edible landscaping will be most important to feeding what is left of us when TEOTWAK arrives.

Here are 3 good books for those interested in developing an urban homestead.




I think we have a real food crisis brewing for the world. Not enough young farmers replacing the old, we will run low of fertilizer as the NG dries up and that food which is grown is devoid of nutrition and not healthy. And to make matter worse, fewer people can even afford to buy produce.

With the recent food shortages in the news I have to wonder as Richard Heinberg brought up "Who will be growing our food 20 years from now?"

"The average American farmer is 55 to 60 years old. The proportion of full time farmers younger than 35 years of age has dropped from 15.9% in 1982 to 5.8% in 2002. Who will be growing our food 20 years from now?" from "Peak Everything" by Richard Heinberg

"Amish farmers can't compete in conventual agriculture farming. 40 years ago 90% to 95% of the Amish were farmers. Today less than 10% are farmers." from: "How the Amish Survive" DVD

And even if the farmers keep up with production, many people cannot afford the high prices of produce. At Krogers a butternut squash was $7, a large apple was $1.85, a rutabaga was $3, an artichoke near $5 and a lemon was $1.35, a bag of cherries was $14.75, ONE organic yam was $8.25.

And these high priced produce are being offered when times are still relatively good What will this stuff sell for when gas is $10 or $15 a gallon? Peak oil, peak NG, peak water and food as well as peak uranium will fuel mass starvation as our artificial and unsustainable world decomposes around us.

As people buy less produce due to affordability issues and the produce stops selling and rots on the shelves, the farmers will grow less produce that just rots unsold and less potential farmers will be entering that field.

Book and DVD list. All available from your local library.

Beyond Oil: the view from Hubbert's Peak
by Deffeyes, Kenneth S.

The Coming Economic Collapse - how you can thrive when oil costs $200 a barrel
by Leeb, Stephen

A Crude Awakening - the oil crash
Lava Productions AG, Switzerland DVD

The End of Suburbia - oil depletion and the collapse of the American dream
by Greene, Gregory DVD

Fed Up

High Noon for Natural Gas: the new energy crisis
by Darley, Julian

The Long Emergency: surviving the converging catastrophes of the twenty-first century
by Kunstler, James Howard

Oil Apocalypse
History channel DVD

Peak Oil Survival: preparation for life after gridcrash
by McBay, Aric

Powerdown: options and actions for a post-carbon world
by Heinberg, Richard

Resource Wars: the new landscape of global conflict
by Klare, Michael T

A Thousand Barrels a Second: the coming oil break point and the challenges facing an energy dependent world
by Tertzakian, Peter

Twilight in the Desert: the coming Saudi oil shock and the world economy
by Simmons, Matthew R.
Well written book examining 12 of the key Saudi oil fields.

Who Killed the Electric Car?
Sony Pictures Classics release

Zoom:the global race to fuel the car of the future
by Iain Carson and Vijay V. Vaitheeswaran.

.."In a shipwreck, one of the passengers fastened a belt about him with one hundred pounds of gold in it, with which he was afterwards found at the bottom. Now, as he was sinking--had he the gold? Or had the gold him?" ~ Ruskin

    Bookmark   September 20, 2008 at 10:43AM
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We buy a piece of land, and say that we own it ... on which we practice farming ... or build a home.

Then we die.

They smoke us.

They dig a hole in "our" ground and drop in our ashes.

Then they plant flowers ... or corn ... or squash ... which we help fertilize.

Did we own the ground ... or does it own us?

ole joyful

    Bookmark   September 21, 2008 at 4:55PM
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Interesting discussion. Bartering seems like a good idea. Also having a large network of friends, because when the going gets really tough, we're going to need each other.

    Bookmark   September 22, 2008 at 1:45PM
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