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The Problem with Metals20 04 06 13  19
-------- They Cause Gold Rushes
As with any investment, I can only imagine it is because people expect that the price and any potential revenue stream it can produce will be greater than other investments with similar risk.The “equation” has three variables:
Price Appreciation is clearly the easiest one to understand, it has doubled up in the last few years. It can also depreciate, as it did during the .com market. Metals don’t produce any Revenue Stream. As much as you like how pretty they look (and believe me, there are few objects prettier than a proof Golden Eagle or a pure gold Panda coin) they don’t produce a stream of smaller coins out of them! Gold, silver, platinum and rhodium can only sit tight on a safe box waiting to appreciate.As for Risk, the wild ride people have experienced in metals can proof there is risk to them. Gold was above $400 in 1989, at about $250 in 1999 and almost $650 today. A wild ride, just like the .com. Silver, an easier to acquire metal (because it is cheaper) has gone from $8 in 1998, to $4 in 2001, to about $15 recently. Today it is just above $12. Percentage wise it is 400% above its lower point! (or 50% loss if you bought in 1998 and sold in 2001. People toy with the idea of “gold intrinsic value”. The only intrinsic and true value it has it that it glitters! Its price is affected by offer and demand and for it being perceived as a safe harbor. You can argue it is safer than a piece of paper (or cloth, like the US Dollar), since even after an economic collapse you still have it, but you can only exchange it according to how valuable it is to someone else. If you are on a desert island you can have all the gold in the world, but you might as well desire it to be a piece of beef jerky instead – with a much more intrinsic value. This said, I am not discouraging anyone from buying gold. Those who bought gold at 2001 and sold today are probably rich, while I am still working. Those guys where either very smart or very lucky (probably a combination). And in the event of a global economic meltdown or nuclear winter, human addiction with all that glitters combined with the scarcity of gold will probably make it hold some value: the ability to exchange it for some food. But be realistic! The only time you will find Gold less risky than other investments is in the case of a worldwide economic meltdown (in which case you have a lot of things to worry). Face the fact that Gold is purely speculative and can not appreciate on its own merits! Companies (stocks) can appreciate by producing stuff and creating demand for it. Houses can be rented. Land can be farmed. Gold just glitters forever! |
Most precious metals can be used for jewelry, scientific, and electronic functions. However, unless you plan to do any of those, why do people buy gold or silver?