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Doug Morris

Buy gold and silver?

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The typical advice from financial advisers to clients is to put their money into an index fund, getting a combination of: low commissions and lowered temptation to try an beat the market. In general, this is still good advice. but... 
... it is based on a key assumption that the future U.S. performance will be pretty much like the past.  Stocks can be hurt by inflation, but their prices inflate too. And, couple that to an unwritten assumption that statist governments have an incentive to subsidize the most common vehicle of investment. 

A true hyper-inflation type scenario is different. But, since such  situation has not really occurred in U.S. history, a financial adviser will never advise you to plan for it; not qua financial adviser. A few economists might be willing to predict hyper-inflation in the U.S., but they're basing their advice on a theory that has not been borne out for a century. 

One can compare the DOW vs. Gold, but looking at the DOW "priced in gold", how many ounces of gold would it take to buy the DOW. 
image.png

Source: https://www.macrotrends.net/1378/dow-to-gold-ratio-100-year-historical-chart

A big problem with this raw chart is that the price of gold was fixed in the U.S. from the great depression all the way to Nixon. So, the relatively bad performance of the DOW during the 1970s was gold shooting up in price from many years of pent up legal binding.
Given that legal context, one really ought to look at post-1980 data. Which gives us this portion:
image.png

Since 1980, the only time when one could have bought gold and still be better off than the Dow today was the years between 2000 and 2008. Notice that this is pre-Great recession, pre-housing-crisis, not post. Why? because the factor at play was the DOW rather than gold. It was the DOW that was shooting up. 

Since 2009, the DOW has shot up again, far beyond its previous highs. Since about 2012, the price of gold has not followed. Consequently, the DOW has risen significantly in gold terms. if you think the DOW is in a new bubble, then that might be an even better (as in history-based) reason to buy gold than a hyper-inflation scenario. 

However, betting against the stock market averages is something that a typical financial adviser will not recommend because it is usually a way to under-perform.

My personal view on gold is that if I own it, it will likely under-perform the stock-market over most multi-decade periods. Personally, I don't see a complete break down of the U.S. system during my lifetime. I'm also aware that in a complete breakdown, either the government or some thug is likely to take my gold from me, and to prevent that it may become necessary to hide it and not actually use it... making its value theoretical. But, as I said, I don't expect anything even close to this scenario in my lifetime.

 I think gold is a decent multi-generation asset, if you want to buy some to leave to your grand children. Even here, buying something like a rental property is likely to have better returns, because it is a true investment.

Finally, if you do buy gold, beware of the scammers out there. Companies that hype the coming inflation etc. are dicey. Many of them  try to convince their customers to buy coins that are not near 100% gold. So, if you do buy physical gold, stick with regular U.S. Gold eagles and the like.
 
 

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