One of the main arguments used by your banker to dissuade you from buying gold is that “it’s not generating anything”, either interest or dividends. It has been true, in a way, for some time. But, now that interest rates are at their lowest and that savings accounts and life insurance policies practically yield close to zero, you could use the same argument against his products.
But I don’t think your banker will reply by telling you to keep your money because his products are worthless...This argument is, of course, erroneous. One has to compare comparables. A bank note does not yield any interest either; you have to give it to the bank and invest it in a savings account, a life insurance policy, or a stock portfolio. Similarly, if you were to loan your gold to a business (in need of liquidity, or that has to pay someone with gold, or for other cases), said business would pay you some interest, it goes without saying. But immediately comes to mind the question of risk: “If this business goes bankrupt, I’m going to lose my gold.” So we understand that the interest (or dividend) acts as counterparty to that risk.
When you put your money in the bank, into several financial products, from the simple savings account to elaborate investment vehicles, you are taking the risk of losing a part or all of your capital. For a long time – in fact, since the 1929 depression – this possibility has been out of the picture, but it made a strong comeback since the 2008 crisis. That crisis was triggered by the bankruptcy of one bank (Lehman Brothers), and several others either failed or were saved in extremis, from Northern Rock to the Banco Espirito Santo. Even sovereign States can go bankrupt and ruin the depositors, as we’ve seen in Cyprus, or again be bailed out in extremis without solving the problem of a debt that is too heavy, as we’re seeing in Greece.
Hence, for those who would like to avoid investments yielding low interest and that could bring their invested capital to close to zero if the State goes bankrupt, there is the stock market. Stocks are doing great, of course, but we must be aware of the risks. On the Dow Jones, we are now at the third peak in the last two decades, and the first two (the internet bubble in 2000 and the sub-primes crisis in 2008) were followed by precipitous falls...
Yield and risk are inseparable, and thus they must be addressed smartly, with lucidity. And, currently, the low yield on most financial vehicles does not compensate enough for the high and generalised risks globally– stock market bubbles, over-indebted States, failing banks. Systemic risk is very well present. As a matter of fact, it is for this reason that central banks are doing all they can to maintain interest rates at the lowest possible. Depositors lose, but the over-indebted States are quite intent on not seeing the servicing of their debt exploding and the banks do not want to have to refinance themselves at higher rates, which would expose a lot of them to some serious problems... and, at the end, they’re the ones who make the decisions. T
his is where gold comes into play. It’s always good to own gold at all times, but especially when systemic risk is high, because gold cannot go bankrupt, it won’t go under. As far as safe preservation of capital for the long term, we can rest assured. As far as the yield... although gold does not pay interest, it has a price, a spot price that can go up a lot when assets and currencies are devalued or in crisis. So, finally, yes, gold can “yield” something and, at the very least, it protects your wealth. What could be better? Ask your banker!
But immediately comes to mind the question of risk: “If this business goes bankrupt, I’m going to lose my gold.” So we understand that the interest (or dividend) acts as counterparty to that risk.
By this argument, real assets that also provide yield are best - like property, which strangely is not mentioned in this article! In a politically stable and secure democratic country (like Australia), property has no counter-party risk - you own it. Your name is on the (freehold) title. And you can rent it out and gain yield, or live in it and gain imputed yield via rent you do not otherwise have to pay. Maybe you can even grow food or raise livestock on it if you have rural property.
So gold removes counter-party risk in return for zero yield, with the advantage of liquidity (although I think this is arguable with respect to how "convertable" physical gold really would be if things goseriously pear shaped). Property removes counter-party risk AND provides good yield, + inflation protection over the long term as well, as property values are linked to growth in the monetary base. Of course you don't have liquidity and ease of convertibility with property - but due to the yield and the utility of property, I would argue you don't need it.
By this argument, real assets that also provide yield are best - like property, which strangely is not mentioned in this article! In a politically stable and secure democratic country (like Australia), property has no counter-party risk - you own it. Your name is on the (freehold) title. And you can rent it out and gain yield, or live in it and gain imputed yield via rent you do not otherwise have to pay. Maybe you can even grow food or raise livestock on it if you have rural property.
So gold removes counter-party risk in return for zero yield, with the advantage of liquidity (although I think this is arguable with respect to how "convertable" physical gold really would be if things goseriously pear shaped). Property removes counter-party risk AND provides good yield, + inflation protection over the long term as well, as property values are linked to growth in the monetary base. Of course you don't have liquidity and ease of convertibility with property - but due to the yield and the utility of property, I would argue you don't need it.
I am not a gold bug but I see the merits of holding gold and I have a stash at the moment. I made a lot of money buying gold at $400 oz. I bought it because I thought it was dirt cheap at the time (having been something like $800 an oz back in 1979). I made an absolute killing when I sold for $1800 (I am talking USD here). The thing is that I never intended to make money. I bought gold at $400 because to me it was like buying house insurance on sale for $50 instead of $800.
I bought again last week and I am waiting on delivery (on the truck now).
Again, I have not bought to make money. I have bought as an insurance policy against a currency or banking crisis. There will be a crisis and that is 100% guaranteed. It may happen next week, next month or next year. It might not happen for five years, but there will be a crisis.
Gold is insurance just like the insurance you buy for your house or car.
You don't get a yield or make CG on the money you pay AAMI every year, but you wouldn't be without it.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
So gold removes counter-party risk in return for zero yield
Gold could be banked and pay interest. But the central banks have around 30,000 tonnes on loan to the world jewelry market for a peppercorn rate. It's the taxpayers pocket that bears the cost.
The central banks have a vested interest in making sure gold isn't used by the market as money. To do so would mean them losing most of their control in capital creation and the setting of interest rates.
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
You keep telling yourself that. The rest of your post says otherwise.
WTF is a gold bug?
I also made a whack of money on copper futures once. Does that make me a copper bug?
I made big money on property in the 80's (buy, develop and sell). Property bug?
I have made some pretty big gains on FX and I also own a 1/4 share in a profitable local industrial enterprise. Any insect names you'd like to apply to those?
Just because you don't understand how something works, doesn't mean you should poke fun at the people who do.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
Just because you don't understand how something works, doesn't mean you should poke fun at the people who do.
Yet that is exactly what you are doing here to those who own property
Hypocrite much?
Ignore posts by The Whole Truth · View Post · End Ignoring The forum fuckwit goes RRRAAARRRGGHHhhh - But not a fuck was given..................by anyone.
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