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XMFSinchiruna (27.52)

The Top 10 Reasons to Hold Gold, Part 1

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May 26, 2009 – Comments (17)

Since there are still so many misconceptions about the bull case for gold, I've decided to lay it all out in a pair of articles. Here is Part 1:

http://www.fool.com/investing/general/2009/05/26/the-top-10-reasons-to-hold-gold-part-1.aspx

Please go read the article it you're interested, and return here to join the discussion. I will post Part 2 in a seperate post, but also back here for anyone following.

Thanks for reading, and for sharing your thoughts!

Fool on! :)

Chris

 

17 Comments – Post Your Own

#1) On May 26, 2009 at 7:05 PM, binve (< 20) wrote:

Sinch, Perfect! I fully agree with all of those! And if I could I would like to add a little here, about gold vs. commodites, and why they are both needed. The following is from my post Steve Saville: Why We are Gold Bulls. And it is a great read, I highly recommend this post and all of Saville's work to everybody:

I have been having discussions with many people recently on why I am a gold bull and a commodities bull. Oil is an inflation play and a strong inverse-dollar play. It has corrected very hard and is now a very good value for long term investors. Gold has not really corrected all that much. And if they are both the same play (inflation hedge / inverse dollar play), why not buy the one that has better value?

It is because they are not the same play. Gold is a currency (again, there are many divided opinions about this. But gold has served as money for more than 4000 years and has stopped being "offically" money for the last 40 years. I say gold has a pretty good track record, but it's your call), it is not a commodity and trades and behaves differently than commodities. There are similarities, but there are big differences too. And as such, gold has monetary utility. But monetary inflation and price inflation and inflation and inflation expectations are all different phenomena.

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#2) On May 26, 2009 at 7:22 PM, XMFSinchiruna (27.52) wrote:

binve

I of course agree that oil remains an extremely solid investment, though I have reduced my natural gas exposure and and even my foreign oil exposure just a little bit during this rally.

I can't shake the notion that the reversal of this rally could be quite painful... perhaps even inducing some version of the forced liquidation phenomenon documented during the last big down-trend.

The President admitted over the weekend that we are, as a nation, broke! He actually said: "We are out of money now!"

A dollar-driven capitulation event could be looming.

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#3) On May 26, 2009 at 7:28 PM, XMFSinchiruna (27.52) wrote:

To clarify, a dollar capitulation event could any of several forms, ranging from slow and steady decline to a more abrupt hit from foreign reserve adjustments and/or hedge fund shorting.

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#4) On May 26, 2009 at 7:40 PM, binve (< 20) wrote:

Sinch, Hey man :) Just to be clear, I was not suggesting that you think that oil is not a solid investment. What I wrote was just taken from my blog post (I proably should have edited it before putting it up here), as a follow on discussion with some people who were questioning why I was both a commodities bull AND a gold bull. And so I put it up here too. That's all :)

We have talked many times over the past 2 years (almost now) about gold, silver, oil, and other commodites. And I agree with your stance now more than ever. Thank you for this and all of your other blogs! You continue to do Caps a great service! Thanks!!

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#5) On May 26, 2009 at 7:59 PM, XMFSinchiruna (27.52) wrote:

binve

Right back at you, man! Your posts are always first-rate, and you have a knack for sparking some of the best dialogues this site has ever seen. Even if I don't always get to say so, I try to never miss your posts.

 

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#6) On May 26, 2009 at 8:02 PM, chk999 (99.98) wrote:

As a way of preserving value, gold is quite useful. As a way of investing, it is not so hot. The reason is that gold has no income (in fact is has costs as you probably need a safe deposit box to keep it in and you pay rent on those) so it will be worth about the same constant dollar amount in the future. A (constant) dollar a year from now is not worth a dollar today.

It is important to keep these two concepts separated when deciding how to allocate capital.

Chris - not a gold bug, but it shore is purty

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#7) On May 26, 2009 at 8:46 PM, XMFSinchiruna (27.52) wrote:

chk999

1.

All I can do is ask you to reconsider your entire paradigm with respect to gold. I have been a careful student of precious metals for many years now, and I flatly challenge the notion that gold does not make an excellent investment when done correctly.

When the reserve currency of the world festers in theoretically unserviceable debt, and the list of investment vehicles that offer protection grows ever-smaller... gold is a most excellent investment. How many public companies have slashed or eliminated dividends in recent months... are they automotically then poor investments? When you have the mother of all currency crises, which is not mere hyperbole, that must warrant a re-thinking of prevailing allocation paradigms.

I know that few Fools would feel comfortable with my allocation of precious metals exsposure, but I would sure at least encourage a critical evaluation of the standard 5-10%.

2.

You refer to bullion only, but I consider a four-tiered approach to be ideal. This would include bullion as insurance against a deepening currency crisis, a selection of miners to offer leverage to price movements, a pure-play bullion proxy without derivatives exposure, and perhaps a royalty play. Every Fool needs to decide for him/herself an appropriate allocation for precious metals.

3.

Historically, what often drove investors to gold was the income. Miners were like utilities when gold was pegged... offering solid double-digit dividends. Agnico-Eagle, for its part, has indicated its interest in instituting a dividend once the present development push is complete. Imagine the beauty of AEM with a 15% yield?

4.

All told, the miners have done poorly so far. Most of my investments made in 2005/2006 remain in the red (although primarily positive vs. the S&P). Is that evidence of their undesireability, or a blaring signal for a monster recovery to come over time? I've made my decision, and left my core positions intact through a correction that sent most investors sprinting away. Of course with hindsight, I'd like to have seen that forced liquidation event coming and reduced exposure for a time, but ultimately I remain a long-term investor aligned with fundamntal ramifications of the macroeconomic events unfolding.

The performance of my silverminer portfolio, with 94.83% accuracy since November and an average pick score of 47.86 with 62 total picks, would seem to suggest that the miners have found some meaningful support. I don't expect a linear progression, as volatility is likely to only increase, but I think these metals and their miners are primed for a break-out before long.

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#8) On May 26, 2009 at 8:53 PM, soycapital (< 20) wrote:

Thank you for your commentary on gold!

What is your general feel for timing to purchase gold and silver? Are we entering a consolidation/correction period as we do many times during the summer? Also for silver do you like SLW?

Thank-you!

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#9) On May 26, 2009 at 10:39 PM, XMFSinchiruna (27.52) wrote:

soycapital

I can not claim foresight of short-term market movements. Gold could move within a wide range before breaking out to new highs, or it could proceed with less interruption from here. For those with no exposure, the benefits of having exposure might far outweigh concerns over exact entry prices. Consolidation, when it does occur, can be brutal, however. Please read my other articles on that topic.

Do I like SLW? :)

http://www.fool.com/investing/general/2009/05/13/silver-whea...

http://www.fool.com/investing/general/2009/04/03/an-asset-mo...

http://www.fool.com/investing/general/2009/02/23/silver-whea...

http://www.fool.com/investing/value/2008/12/24/was-this-the-...

http://www.fool.com/investing/value/2008/11/25/silver-sellin...

 

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#10) On May 26, 2009 at 10:55 PM, portefeuille (99.60) wrote:

I do not quite see why these 5 points are "Reasons to Hold Gold".

There are better "things to hold" if these 5 points were valid.

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#11) On May 27, 2009 at 8:02 AM, XMFSinchiruna (27.52) wrote:

portefeuille

Like what? Bring it on, man. Are you also challenging the validity of the five points, or just the conclusion that gold offers protection from a falling USD?

Let's discuss, for the benefit of all. :)

 

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#12) On May 28, 2009 at 7:49 PM, portefeuille (99.60) wrote:

okay, I have found one (or klarman has ...):

auto finance company debt (see this video. see the whole video, it is great. the auto finance company debt part starts at 00:52:15).

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#13) On May 29, 2009 at 3:28 PM, ChrisGraley (29.95) wrote:

Great Article! I also loved the article about the slingshot effect with Silver. I hope that others realize the the slingshot is still being stretched right now.

 

Chris

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#14) On June 01, 2009 at 12:23 AM, redneckdemon (< 20) wrote:

I stumbled across this article over at lewrockwell.com and thought you might get a kick out of a quote from it.

 I recall in an earlier post of your's, someone objected to the thought of Gold as currency by stating that you couldn't buy anything with it.  Perhaps that was in whereaminnow's blog, but still...

 

"When will the U.S. show be over?

Hard to say. But when your expenses are 650% of your income, it can’t go on for long. Not only is the curtain falling, the whole theater is collapsing around us. Better make sure you have a clear shot at the exit.

In fact, some U.S. businesses already are.

My home county has a few decent-sized towns, but for the most part is still rural. Our biggest claim to fame is a section of famous U.S. Route 1 – the first route to run from New York to Miami along the East Coast. On our section of Rt. 1 has an abundance of auto dealers. But recently, the largest one put out one of those fancy electronic message boards. The advertisement read:

“NOW TAKING GOLD AND SILVER FOR YOUR VEHICLE DOWN PAYMENT.”

I’m pretty sure they’d be just as happy to take it for the entire payment as well. So who needs the U.S. dollar after all?

 

 

 

 

 

March 29, 2009

Bill Jenkins is a church minister and owns his own contracting business.

Copyright © 2009 Daily Reckoning "

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#15) On June 01, 2009 at 12:29 AM, redneckdemon (< 20) wrote:

Forgot to provide a link to the complete article.  Sorry about that.

http://lewrockwell.com/orig10/jenkins2.html

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#16) On June 02, 2009 at 5:55 PM, XMFSinchiruna (27.52) wrote:

Thanks for posting that redneck ... I've seen dozens of similar cases documented across the country. It is an interesting development, although gold is money whether you can purchase goods with it directly or not. :)

By the way, Fools, here's Part 2 of the article that started this post:

http://www.fool.com/investing/general/2009/06/02/the-top-10-reasons-to-hold-gold-bar-none.aspx

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#17) On June 02, 2009 at 6:03 PM, XMFSinchiruna (27.52) wrote:

portefeuille

Auto finance company debt? That's what you bring me to rival gold as an investment in this environment? Really? :) Everyone's entitled to their opinion, but even if that video were 52,000 minutes long I'm sure it could not succeed in convincing me that auto finance company debt is a wise investment vehicle given the rampant levels of leverage and derivative exposure implued therewith.

The video you posted doesn't let me fast forward, and I'm afraid I don't have 52 minutes to spare for an idea that I can already be sure I'd have zero interest in. I expect massive increases in auto loan defaults for the next several years. This is part of the domino effect I discuss here:

http://www.fool.com/investing/general/2009/06/01/are-you-ready-for-round-ii-of-the-mortgage-meltdow.aspx

 

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