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Gold in my opinion is more trouble than it is worth.

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May 24, 2011 – Comments (6) | RELATED TICKERS: SLW , GLD , CEF

Gold in my opinion is more trouble than it is worth. It is heavy, soft, not really useable in many industries, hard to protect, and baddies are always looking to take it way.

But what matters is not my opinion. The opinion of the rest of the world is what holds sway. With the rising middle class in India, Brazil and China the demand in gold will go up. They will want all types of pretties to display and also a way to protect a portion of their hard earned wealth from inflation, and other market forces. The easiest, least complicated way to do that is by buying and holding gold and other precious metals.

There are a variety of ways one can choose to play this reality. The way I have chosen to profit is by buying a few miners that produce the stuff. The profit margins at the current price per ounce is really good for many of them. Even if gold drops down to $1,000 an ounce there are a few that would still be making a tidy profit.

Some consider gold to be a commodity like rice, pork bellies or re-runs of Night Court. I've also read where fellow Fools view gold as money. Frankly I don't care how you catagorize it. The old tried and true "buy low, sell high" method of making money still applies to the world of gold.

Before you decide to invest in the physical metal, ETF or a producer please, PLEASE, do your due diligence. Do not dip your toe in these waters unless you are wearing a life vest.

Cato

P.S. - I would also recommend reading from the posts of TMFSinchiruna/Chris Barker to assist you with your precious metals education. He has a firm grasp of the subject, has helped me learn a lot.

 

6 Comments – Post Your Own

#1) On May 24, 2011 at 11:23 AM, ryanalexanderson (< 20) wrote:

I am one of those mentioned, who believe that Night Court reruns are pure, pure gold. 

 

Disclosure: Long Night Court reruns on VHS. 

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#2) On May 24, 2011 at 11:33 AM, L0RDZ (78.47) wrote:

Gold has its uses....  especially if you need to bribe the border guards...

At best though,  your not gonna get rich off  it,  and  if you plan  such,  if  you get in too high,  forecast  will call for intense pain.

Think  of  gold  as  a little insurance,  no one would spend all their money on insurance,  only  some  to protect.

 Gold works best as jewelry  :)

 

not heavy bars...

 

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#3) On May 24, 2011 at 12:27 PM, TMFAleph1 (95.15) wrote:

I'm with LORDZ on this one.

With regard to gold as disaster insurance, there is an interesting passage in Barton Biggs' Hedgehogging in which he refers to an old Chinese man who had been a General in the Chinese Nationalist Army. This fellow had seen combat against the Japanese and the Chinese Communists and had experienced real upheaval, including being dispossessed of the family's assets in Hong Kong.

This man remarked to Biggs that the store of wealth that had served him and his family best during periods of grave crisis (revolution, war, etc) was not gold (and obviously not paper wealth), but... quality jewelry.

Alex Dumortier

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#4) On May 24, 2011 at 8:47 PM, XMFSinchiruna (27.05) wrote:

So LORDZ seems to think it's not reasonable to expect investments in gold to yield significant generation of wealth, and TMFBullnBear says he agrees, but I wonder whether either of them are properly considering the outlook for quality mining equities, or whether they are transfixed exclusively upon the issue of bullion.

I have no problem with folks viewing gold as insurance, and concluding therefore that only a modest allocation is warranted. Indeed, I have always kept my message to an admoinition that each investor consider "some" exposure, while leaving matters of allocation strictly to the individual. Likewise, I have taken care to state that I do not recommend that investors mimic my own significant concentration in gold and silver exposure.

That being said, before I shift my assets from gold and silver into other asset classes, I do indeed expect to have generated significantly greater gains than those I have already garnered from the sector to date. Time will tell.

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#5) On May 25, 2011 at 6:29 PM, L0RDZ (78.47) wrote:

LORDZ  owns mining companies  :)   the best  in the world.

But as to LORDZ owning directly vast quantities of  gold bars  ~~  no...  I don't own gold bars,   don't even  wear  gold chains.  well maybe I might have a chain or two around the house somewhere  :)

What I do own is  BHP   and have owned  others.

Its one thing to own a quality company and another thing to own a bar of only some shiney metal that will never  reproduce  or  grow and can increase or decrease in value  and is not readily  exchangeable. 

 

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#6) On May 29, 2011 at 9:35 AM, skypilot2005 (< 20) wrote:

On May 25, 2011 at 6:29 PM, L0RDZ (66.24) wrote:

 "Its one thing to own a quality company and another thing to own a bar of only some shiney metal that will never  reproduce  or  grow and can increase or decrease in value  and is not readily  exchangeable. "

I don’t own gold bars, either. 

Many here at the Fool question the wisdom of buying gold and silver now verses select S&P stocks with no exposure to precious metals.  

Seldom do you have an anti-precious metals writer present a balance evaluation of the current situation.  Many, like to sound the alarm about the sustainability of the current price of Silver and Gold but do not defend the current level of S&P stocks. 

Right now, given the current macroeconomic situation, I feel buying the S&P is extremely risky.  Since 09’, the S&P has risen nearly 100% and it is May. 

Historically, there is a negative correlation between inflation and the price of most stocks.

We are running huge budget deficits.  Some believe this increases the likelihood of increasing the rate of future inflation.  I do.

Let’s say you do buy select S&P non-PM stocks here.  What is the potential upside reward? 

To me, the SAFE  thing to do is buy a PM company that is a low cost producer with an increasing production history AND have cash available to deploy this Summer and Fall.

Buying non-PM companies in this Macroeconomic environment and this time of year is just plain crazy.  The risk - reward is totally unacceptable.  Bring up a chart of the price of the S&P historically, to see what I mean.

Some may counter that there are great individual stocks in the S&P to buy, today.  Fine but they need to include what future inflation will do to the price of those stocks.  To not do that is to implicitly say there is no future inflation risk.  I think there is and that it is substantial. 

Then, they need to list PM stocks with similar earnings increases and project what effect future inflation will have on their share prices for comparison. 

This is the way I feel stocks should be evaluated in our current Macroeconomic environment.  Both sides need to be presented and evaluated. 

( PM = Precious Metals)

Sky Pilot

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