Hey guys, I want to write an educated rebuttal to the statement below. Everyone's ideas are greatly appreciated. I have a few ideas like inflation adjusted stocks, scarcity, industrial and monetary value, test of time. Cheers! Gold and silver are bad investments because they don't earn.It is purely gambling. If you think the currency will collapse then invest in mining companies never buy the metal because all it does is sit there. Over a long enough period it will always have the same relative value. The stupid thing about the people that harp on about gold and silver do so because they see paper currency as a house of cards that it has no real value and may collapse at any moment. The reality is gold and silver are very similar, while they do have an industrial value most of their value exists on the exact same level as paper money.it has value because people say it has value. If people really want to keep there money safe buy metals that sell at prices based solely on there industrial value like aluminum., but like I said at the start, invest in the mine instead you will earn much more. P.S. This is a dual post, sorry....originally posted in silver.
This is the follow up logic behind the statement: Here is the maths Scenario 1 - Stable economy $100 000 cash in the bank 10 year long term deposit. You earn interest at around 5%, inflation is around 3% At the end of ten years you will have $162 889 $100 000 worth of gold presuming it goes up at the rate of inflation ie holds its value you end up with $134 342 Clearly in a steady stable economy cash wins. Obviously there is a risk/reward factor with gold. You may believe that over a ten year period that gold will become more and more of a safe haven and that is value will increase beyond inflation as demand for it increases. That is pure speculation but lets say you are right. Then your investment strategy is based around rising gold prices and finding the best way to cash in Scenario 2 - The world goes to shit and gold becomes a major safe haven. Once again you could buy the gold. $100 000 worth but this time gold increases at triple the rate of inflation 9% per year, after ten years you end up with gold that can sell for $236 736 Now look at if you bought shares in several gold mining companies . $100 000 worth of shares. Lets say the across those companies the average cost to produce the gold is $1500 per ounce(wages, machinery, fuel etc.) and they are selling it at $1750 per ounce. Thats a profit margin of $250 per ounce If gold goes up by its 9% then the price per once in the first year goes to $1907.50. Costs will also rise to due to inflation(3%) to $1545, but you now have a profit margin of $362.5 per ounce. That's a 45% increase in profits based on a 9% increase in the price of gold. Over ten years that would leave you shares worth $619 000 In no long term scenario is the smart option to buy blocks of gold.
Pretty much as you said yourself, holding physical isn't an investment, it's currency. Giving your cash to someone else to invest (including a bank on term deposit) is an investment that then comes with counterparty risk. It is essentially that simple. You may be confusing currency speculation as an "investment". Such speculation can generate profits and losses (e.g. holding A$ vs US$ or holding gold vs US$ etc) but it is different to true investment.
Why bother arguing?...if said poster wants to drop his bundle on penny-dreadful miners let him fill his boots. P.S. Don't get suckered into the old "Investment vs Speculation" argument. It's just a war of symantics, all investment is speculation and vis versa. i.e.; I can invest in a tertiary education, but I'm still just speculating that the jobs market will want my degree when I get out. Or, I can invest in a new machine for my factory, but I'm still just speculating that demand will be there/it will improve efficiency. Whenever you see a statement with emotive words like "Stupid", just walk away...you're being baited!
^^ This ^^This ^^and this. Everyone invests in different things because they have different views or reasons. Most investments (speculations) are not stupid and each have their place, but the reasons for investing can be. One thing that a lot of stackers are loathe to admit is that they are speculating, and that in time they may be proven wrong in their view. The most dangerous and stupid reason for investing in anything is "because you know you are right....."
It sounds like you guys have had investment vs speculation discussions in the past so apologies in advance for any repetition or resurrecting topics you thought were dead. Without thinking too hard about exact definition, I was referring to investment as doing an activity that is actively trying to accumulate profit (however you want to define profits). Hence, shares, university degrees, rental property, new machinery, term deposits etc. In contrast holding physical property (notably currency/gold in this particular topic) is not actively "doing something". It sits there as a lump. A speculative element comes in when you decide to hold a particular lump of property for a period of time with the expectation of it having value/purchasing power in the future. A greater speculative element comes in as wrmcad's comment when you specifically decide to hold a particular lump of property versus another (nearly equivalent) form for expected higher future purchasing power which was my currency speculation example. So active vs non-active. Active almost always come with some form of counter party risk but with the expectation of "interest" greater than purchasing power (i.e. get back more than what you put in) whereas the non-active (e.g. gold, A$ under the mattress) principally comes with minimal or no-counter party risk with expectation of similar purchasing power (i.e. get back what you paid for it). Given your past discussions etc, does that make any sense or do am I deluding myself?
I would also mention that it all depends which mining companies you invest in. If it is a question of holding on to the wealth they have got or potentially losing it to either some mismanaged mining companies, or losing it via the share market because of a mismanaged economy, what really is the best option for the average person? I go for diversification, some metal, some mining companies. So far, I've done significantly better out of the metal.
