I've heard people on this site claim that gold isn't a reliable hedge (then what is?) because, historically speaking, the price of gold has not always followed inflation. While this is technically true, wouldn't that depend entirely on the timeframe? I have a timeline to bring to the table, and I apologize for not having the link, I have been trying to find it, but where I found this information was on a rather lengthy YouTube video, not an article or anything like I searched for. Regardless I'll give the information as it was presented in the video, and maybe someone else here will know the name of the article in question. Someone decided to see where $1 would go had it been put into different investment vehicles back in (I believe) 1818. One year after the stock market was created. He put the one dollar in specific stocks and some other things, and then one dollar in gold as well. The stocks performed best, and apparently gold performed 'poorly' because in that period of time that $1 invested in gold only turned to $2. How about that, investment in gold only DOUBLED in that time frame. Not to mention he obviously didn't choose the stocks that he knew were bound to go broke. As a hedge against inflation, ideally that $1.00 would still be $1.00 two hundred years later, instead it doubled. Sounds like a pretty reliable hedge to me. Once again, apologies for not having the link for this information, but if anyone wants it I can post the video I found it from, and the time in the video that the information was given.
The problem is this Sonic. $1 in 1818 is not the same thing as $1 today 2015 or for that matter $1 in 1918. If $1 had the same buying power today as it did in 1818 then your argument of this turning into $2 would be a good one. Without looking at an inflation calculator i would have it a guess that a 2015 $1 has about the same buying power as an 1818 penny. Just in modern times look at a house bought in a nice community in 1970 that you paid $15000 for , today that exact house may sell for $150,000. If you had doubled you $15000 over the same time period with gold you would still be $120000 short of the inflation adjusted price of the house. While the dollars are still exactly the same , their buying power is not. Incredibly simple example as i am pretty shit at these long explanations , but someone will come and fix this up for me
I thought the inflation of the dollar would sort of correct itself based on how much gold could be bought with it. I don't know what spot price was in 1818 but surely $1 at that time would buy far more than it would buy now. That plus the dollar doubling in that amount of time has to count for something right?
Okay I was very wrong (in my defense this wasn't my original idea lol) gold spot was $20 in 1818 so $1 is 1/20 of an ounce. Now 1/20 of an ounce is closer to $60 so shucks. There you have it I guess. Is that right? In order for gold to have kept up with inflation in that time period $1 should have been $60 at this point right? I want to make sure I'm not missing something again. Somebody should bring this up to the guy in the video. He was making a lot of sense at the time lol Well this depressing. Why the hell should I buy gold then if it's not even going to keep up with the dollar? Aside from a dollar collapse which might not even happen? Very depressing.
Looks like from these post real-estate would have been the best inflation hedge. Just saying although I could be wrong.
Source: Art. Antiques. PMs. All can be transferred physically and act as stores of wealth without an auditable electronic or legal process. The counterparty risk in art and antiquities is minimised only by the recipients expertise which is more demanding with art and antiques than pms which means there is less liquidity. All are moveable, physical have no management fees etc. They are stores of wealth not investments. They do not produce income. They can be physically transferred intergenerationally without any counterparty risk or observation. Now land, commercial and residential has one weakness. It is fixed obvious immovable demands a legal transfer and is a sitting duck for tax, property has maintenance costs (ask anyone who rents) and can be very illiquid however it can be turned into an income stream which in general an ounce of gold or a banksy print cannot..it is not a store of wealth it is an investment returning income as are dividend stocks and venture capital investment. Neither can you get into real estate for the price of a few ounces of gold. Stores of wealth are not investments. Investments are not stores of wealth. All have their merits......but real estate is no magic bullet. It cannot be compared with PMs because it is a different category of fiscal instrument. All should be in a balanced portfolio but if you have no wealth to store you should be strongly biased towards income producing investments *not* stores of wealth. Real wealth takes generations (e.g enough wealth to fund several comfortable lifetimes without any other form of income) and when inflation hits those with stores of wealth....well the rich get richer the poor get poorer.
Why should you own gold? Because people have always valued it!!!!!! This inflation "hedge" rubbish is only possible if you buy at the right time. And also be prepared to sell at the right time. As long as people see value in gold , why not collect it You could just as easily hedge with stamps, but i do not like stamps as much as i like playing with coins and jewlery. Got to go get the kids, i shall have a think and come back
@Oldsoul: Regarding Art as a store of wealth and not an investment due to the lack of income generation. I have come across galleries which rent out art to businesses. Do you have any idea of the volume of art that is offered for rent or whether it is a viable proposition? The art I have seen for rent is not the sort of art that I would want on my wall so I am guessing all the good stuff is either already rented out or not available for rent.
Another thing I considered is while gold evidently doesn't keep up with inflation, it does still rise in value. So purchasing gold (and silver) will be much more beneficial in the long run than just putting the money into a savings account. Plus with how abysmal CD rates are now, it probably is the best option. It will probably always be a smart way to store money, but I'm still a little bummed out to learn it's done so poorly against inflation over the years.
I have been made offers via a middleman (not to pleased at the auction house who provided my contact details and ensured it would not happen again) who was looking to hire certain artists pieces I own apparently for some corporate boardrooms so it certainly is viable and happens. He'd certainly gone to great lengths to find the requested pieces. It got to the point in the conversation with him to "so you cover the insurance costs" and he had no answer other than mumbling that the level of insurance cover was up to me. What was being offered would have possibly just covered insurance and I know the insurer would have wanted every detail on security arrangements, degree of access etc. I think there are few and far opportunities to use art as an income generator, it is really a store of wealth if well bought . I'm not a big lover of insurance policies anyhow (I have my own security arrangements that give me more peace of mind and know insurance policies listing physical wealth stores can be double edged ) but if something of mine is going out on lease I want it insured. Talking to folks subsequent to that I heard that there are a few auction buyers that do actually try and make income leasing art but it is not my bag. I still see art as a wealth store not a revenue stream. Another issue is framing costs and risks of inept framing on archived prints and canvas. A few galleries have asked me for pieces so they could stage 'events' (art speak makes me shudder) but e.g. could not understand why I would wish to be anonymous or bizarrely wanted me to cover framing costs for the privilege . No interest. I have agreed let pieces go out on loan to genuine public shows in national galleries for free but only on condition of anonymity and a copy of the insurance cover. ..... leased antique arms and armour to armourers for use in movies (with the insurance covered) but more for the kick of seeing the pieces in movies. It's IMO a peak in art right now and I'm in a backseat on buying, I don't expect a crash but a small pullback. The contemporary art market has seen insane growth and price inflation - some artists pieces have gone from the equivalent of 200 UK Pounds for a signed print to 20,000 UK Pounds in the last 10 years...arms and armour has been decent too with nice steady price rises.
Now now Sonic "never go full retard" At least you spotted it. I do not even realize sometimes until someone (the wife) points it out to me. Oldsoul has is it with the art they are talking about. If we knew lots of art lovers and investors we may well have gone that route. Silver and gold is just that little bit more familiar for most of us. As i have mentioned i am a coin collector that got into stacking , so silver and gold was an easy option for me. Even if i had not collected coins . Even now in my late 30s i still remember putting silver florins in the arcade games cause the newer games dint seem to like them. I cringe to think about how many thousands of dollars worth of silver i feed into arcade games as a child. Being a bit of a resale guy now i see lots of other bits and pieces people collect with the intention of making profit down the line. There are stamps, art, coins, posters, and then there are the things id have never considered like tiles from old fire places(sold individually for big $$$),period light shades . Tooo many to list. Pms' are OUR thing though Sonic, and fortunately there are LOADS AND LOADS more of us out there which give us the opportunity to make big in the future if we find something in limited supply that is demanded by many. Pretty simple attitude i know, But i really do not think it is much more complicated than that (unless you want it to be)
Gold has greater liquidity in all circumstances than art and if you have income then its imo wise to have 10-20% of wealth in it as a hedge but putting all your wealth in one category is never going to be good..... I fell into art by accident 30 years ago just buying small things I liked before the artists were famous. Its a completely unregulated market and packed with even more pumpers, frauds and conmen than used cars. Antique arms and armour was incredibly cheap when I was a teenager - now what could have been bought for a days wage of manual labour then would cost a months wage now. The point I was making NZ was that there are certain asset classes that are utilised for intergenerational wealth transfer and wealth storage that have always been utilised by the wealthy, organised crime, corrupt statists for a loooong time. You can be certain in the categories preferred like fine art and fine antiques (arms and armour is about the oldest 'collectable' market on the planet) that they will have a fair chance of ultimately matching inflation. Each area real estate, art, antiques, PMs has their own particular scams, pumps, dumps and fluctuations but over time do reflect increases in monetary supply in pricing if buying quality. I see more and more taxes hitting real estate though as it is a sitting duck for authorities and many governments are either in massive debt or terminally corrupt...or both.....annualised taxes and death/inheiritance charges, environmental charges etc It's got to be the singularly most easily taxed asset class of them all. I've also seen a few property bubbles - never ends well. The price of real estate most certainly is not assured to be always up.....in that regard Australia will ultimately go though some real pain and I hope the banks in Aus have their books in order for when the tide rolls out. I know one character who became wealthy via stocks after 20 years of being a workaholic. He bought a second house just to house a collection of vintage arcade machines. Takes all sorts to make the world go around........ Liquidity is important and gold and silver have that - you could be a long time waiting for a cash buyer for a piece of art, duelling pistols or gemstones and you *never* want to be in a position of looking for a fast sale to raise cash in lower liquidity assets. Ask yourself what happens to buyers in a property slump. They vanish - you could have a house on the market for literally years in such an environment with no interest. PMs are vastly more liquid. Store of wealth Vs income generating investment, different fiscal tools for different jobs.
The thing about coins is they can be not only precious metals, but art and antiques too! Depending on how you look at it. There are plenty of beautiful artworks to choose from from all sorts of different coins, but this probably rarely effects the price of them. The older the coin the more valuable it will probably be too. So you've kind of got all 3 here. Reminds me of another video I watched last night where someone gave me an insightful perspective of numismatics. He pointed out that if there comes a time where the demand of silver booms and many pieces get melted down, the collectibles will only be worth that much more afterwards. He gives an example of not being able to find a particular coin for his collection for years, and finally found it and was willing to pay much more for it. So what if the collector was wealthy? If somebody wants something that you have you can set your own price. The problem is you may never find that wealthy individual who wants what you have. But I still think apart from focusing on ounces I will occasionally seek out rare coins that I think will only get more rare. It will take a lot of research first. And honestly I'm not even sure how I will do that research yet. I guess I'll start by looking at mintages, there's probably more to collectibility than that though.
People always need some place to live though, so property that generates income is still way ahead of PM's that generate nothing. PM's are like owning a house, it's not an income producing asset, but yes, more liquid of course. In either case of property vs PM's, you only need to sell in a slump if you have income troubles. i.e. no job and your fiat runs out. Otherwise, just ride it out with practically no change in your lifestyle.
They can be compared IMO. Both are worth something at the going fiat rate. Both are also unlikely to drop to zero fiat value, so both have exchange value and monetary value relative to whatever currency is used at any point in time. Both can be sold (not equally easily) at the going fiat rate. If all those things are true then how can someone with say $1M in current property value, have any less of a store of wealth than someone with $1M current worth of PM?
