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milpo (44.41)

Why Didn't I Buy Gold in 1997 ???



March 13, 2009 – Comments (4)

Since 1997, real inflation, as opposed to ridiculously understated official inflation, has raged at a minimum of 8% annually, and has soared as high as 14-16%.  This means that you have lost a minimum of two thirds of your 1997 purchasing power.  So, if you invested $10,000 in the Dow components in 1997, not only would you have no gain whatsoever, you would have losses on the stocks which were dropped from the index due to poor performance and, in addition, to add insult to injury, your purchasing power has been reduced from $10,000 to approximately $3,000 in terms of 1997 dollars.  In other words, that $10,000 you invested in 1997 will today only buy what $3,000 would have bought in 1997.  Effectively, anyone playing the general stock markets has been wiped out by this combination of lost capital gains and reduced purchasing power.  

Those who began investing after 1997 have done even worse because they have suffered major capital losses in addition to having suffered reduced purchasing power.  So much for the much touted 10% average annual gains for stocks.  By contrast, you could have bought gold in 1997 for about $300 per ounce and more than tripled your money at today's prices.  Your $10,000 would have become $30,000+, however, due to inflation caused by the Fed's profligate increase in the money supply, which the Fed intentionally orchestrated in order to impoverish you and bring you to your knees so you will accept world government, your purchasing power would only be about $10,000 in 1997 dollars.  So you would at least be even in terms of purchasing power.   Certainly, $10,000 in purchasing power is a whole lot better than $3,000.  

This example is a classic illustration of how gold preserves your wealth.  As you can see, failure to invest in gold, silver and their related shares is tantamount to committing financial suicide.  The bankruptcy courts will soon be full of the tens of millions of US citizens who ultimately will ignore gold and silver as a safe haven, or who will simply lack the capital to invest in gold and silver in any case because they are in hock up to their ears, or because they have become unemployed, or both.

4 Comments – Post Your Own

#1) On March 13, 2009 at 2:07 AM, nihilkillsmemore (23.43) wrote:

nice post... i like gold, but I love oil even more... americans cant go green overnight and in order to go green you have to use fossil fuels to make green you use cant get it back..oh yes..I forgot..OPEC AND HYPERINFLATION. I guess we are all screwd. anyways thanks for the post and tell me what you think about my thesis..



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#2) On March 13, 2009 at 3:25 AM, cclogic77 (23.09) wrote:

Very nice post! I have a  few questions.

How do you calculate real inflation? For the "official data", you are referring to government economic data I'm assuming.

Haven't all other currencies inflated at a similar rate, over even much faster?

Is this pattern over the past 12 years that you've just descrxibed a general trend? Are there any other assets/materials that tend to hold value well and can serve as a hedge against inflation (maybe oil like the poster above me suggested)?


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#3) On March 13, 2009 at 4:13 AM, uclayoda87 (28.62) wrote:

I really like your post, since I continue to own a lot of mining stocks.  I admit I also own GLD, MON, AAPL and multiple energy stocks since I can't be certain what will benefit the most from the Dollar's eventual fall, but most of these will likely improve in value.

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#4) On March 13, 2009 at 10:25 AM, rofgile (99.31) wrote:

Or... Gold is a large bubble now.

It seems that 10 bucks can buy pretty much the same stuff as it did 8 years ago in the REAL WORLD, not gold world.

So, while it would have been nice to invest in gold in 1997, right now you might get quite hurt if you invest in gold or mining.

(Which is good - since mining is quite environmentally destructive.  I would love to see 50% of all mining operations fold.  That'd be heaven) 

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