Investing in gold and silver?

Oh gosh, here we go again. Not you Trippin Out. I'm talking about De Deuce. First of all Deuce, if your going to start giving out advice, at least get your facts straight. Nixon closed the gold window on August 15, 1971 - not 1972. And it took 9 years for gold to reach $850 an ounce (1980) not 3 years.

So, you say gold is for suckers huh? Okay, genius (Deuce) what was the stock market doing from 1971 to 1980 when gold shot up 2,328%? Want to take a guess? Stocks were in the midst of one of the most brutal bear markets this country has experienced. You see Deuce, people like you "claim" to be knowledgable about a certain thing, but are in fact absolutely clueless. While gold was taking off in the 70's, equity investors were getting crushed. While gold shot up 2,328%, stocks were down 22% from 1966 to 1982.

You see Deuce, the truly "wise" investor doesn't get married to an asset class, they go where the money is being made. Only an amatuer will stick with an asset class no matter what, and that is absolutely moronic.

Well, what's happening today? Stocks are in negative territory. The Dow is DOWN 1.29% since Jan. 1, 2007. Yet, gold is up 50.32% since Jan. 1, 2007, so genius, who is the bigger loser, a person investing in gold, or a person investing in equities?

Oh, and I absolutely love your analogy of the couch. Great job. But it's interesting that you only applied that to gold. It seems you conveniently forget that stocks have (and will) experience the same thing. You seem to forget that in 1929 the Dow topped at 380.33 and then 3 years later was at 42.84 - an 89% loss of value.

That's why pro investors make money consistently. They don't just stick to an asset and always hold it come heck or high water. The pro's know that every asset has a cycle and to know when to move from one asset to another when the cycle changes. Equities run on roughly an 17-18 year cycle. Commodities on roughly a 10 year cycle or if it's a super cycle, about 21 years. For example, stocks from 1949 to 1966 were in a bull cycle, from 1966 to 1982 were in a bear cycle and from 1982 to 2000 were in another bull cycle (I'm talking about long term secular cycles). Gold from 1971 to 1980 was in a bull cycles and from 1980 to 2002 were in a bear cycle. The difference is, the amateurs don't know this or don't care to know, the pros do, and it is the savvy and wise investor that takes advantage of these cycles. Prior to 1971, the Bretton Woods Agreement was in effect and gold was fixed at $35 per oz., so you couldn't invest in gold from the end of WWII (when Bretton Woods took effect) and expect price appreciation because gold wasn't allowed to trade freely.

I've heard the argument that "if you invested in stocks in 190whatever and in gold in the same year, you'd be this much richer". At face value, yes, that seems like a great argument, but upon closer examination, that argument is severely flawed.

First, the average person only has a 30-35 year investment life cycle. The average person will retire at age 65. So, you figure by the time they graduate from college, get married and working and are able to start to make progress in investing for retirement, they'd be around 30-35 years old. So, with 65 being retirement age, you have about 30-35 years on average. Well, you need to figure out which investment vehicle is the one performing during your individual investment cycle. If you put money into stocks in the late 1920's, it would take 25 years (1954) for you to break even on nominal terms. In real terms, you would have had to wait 55 years. If you invested in stocks in the early/mid 60's, you would have wasted half of your investment life cycle waiting for stocks to actually show a positive return. Same thing for gold, if you invested in gold in 1980, you would have had to have waited 28 years to break even. The issue is not which investment is better, the issue is WHICH INVESTMENT IS BETTER DURING THE TIME FRAME YOU ARE CONCERNED WITH.

Second, the stock market is designed to always go up, so it's not a true picture of comparing equities with commodities. What do I mean by this? The DJIA is composed of 30 industrial companies, thus the average is computed on the valuations of those companies stocks. Well, let's go back 100 years to 1908. Do you know how many Dow component stocks that comprise the DJIA today were also component companies of the DJIA 100 years ago? Only 1 - GE. The other 29 were replaced years ago. Some of those companies don't even exist today. So, if one of the component companies starts to look not so great, simple, just replace it with another company that's doing better. As a matter of fact, just last month, BofA and Chevron replaced Altria and Honeywell. In the past 100 years, there have been over 125 different companies that compose the DJIA, so based on that, how can one accurately compare stocks to gold or commodities? Gold is always gold, wheat is always wheat, but the DJIA is not always the DJIA of a few years ago. I would venture to say that if the companies that comprise the DJIA in 1908 were the same today, the Dow wouldn't be anywhere near 12,000 points.

People like Deuce absolutely amaze me. Commodities and gold a suckers play? Since 2000, gold is up 232%, silver is up 298%, wheat is up 306%, corn up 192%, crude up 237%, sugar up 133%, coffee up 228%. What did equities do during that time? The Dow up 4.52%, the S&P 500 down 14.7%, the NASDAQ down over 54%. So Deuce, who is the bigger sucker, the one that has been investing in commodities recently, or the one investing in stocks?

Again, it is the wise and savvy investor that knows where to be during the current market cycles. The current cycle is favoring commodities, not equities. And the main reason that equities are currently still somewhat "rising" is that the fed has been pumping the money supply (some $800 billion in the past few months) to soften the housing market meltdown, and that is inflationary and that will also lift equity prices. So, you see, the stock market is not rising because of true value, but due to inflationary pressures.

Trippin, to answer your question, when you hear that gold could reach $2200 per ounce, what they're saying is that adjusting for inflation, gold should be trading at $2200 per ounce right now to equal the $850/oz. it was trading at in 1980. Remember what I said about the gold cycle running about 10 years in length? Gold bottomed in 2002, so we are only 4 years into a 10 year cycle (or 21 year cycle if it's a super cycle - which I personally believe it is, but that's my opinion and I have no quantifiable way to prove that), so we still have another 4-6 years to go in the new cycle. And with the fed pumping the money supply (along with the other world central banks), the pieces are in place for gold to go much higher. And if the Fed goes really crazy with the money supply, $2200/oz. gold could be easily surpassed. Let me give you an example, after WW One, when Germany had to make war reparations, they kicked up the printing presses and printed money to make those payments because their manufacturing base was destroyed due to the war and they couldn't make the goods to sell to raise the funds; so they just printed the money and infalted the money supply. Just prior to doing that, 1 oz. of silver was worth 12 Reichmarks (RM) and 1 oz. of gold was about 170 RM. Just 2 years later, the Germans had inflated their money supply so much and devalued the RM so badly that 1 oz. of silver was 580 BILLION RM and 1 oz of gold was 87 TRILLION RM. You read that correctly, Billion and Trillion.

Also, for the people that say stay away from silver, I can not necessarily concur with them. Why? Silver is an industrial precious metal, so it gets used, ergo, silver supplies and stocks are decreasing. As a matter of fact, in Feb. 2001, the U.S. gov't released the last 16 million oz. of silver it had in our Strategic Stockpile, for minting purposes. As of that date, the US had no more silver reserves. Now, I'm not sure if we've replenished any of it since then, but you can see that silver is being used up. In addition, silver has a much greater return relative to it's inflation adjusted price. For example, the real (inflation adjusted) price of gold is $2200 per oz. With gold currently at $933/oz. that would translate to a 136% increase in value from it's current level. Silver's real price is around $200 per oz. and with it currently trading at $17.89/oz. that translates to a 1,018% return. Even if silver's real price were say $100/oz., that's still a 459% return. So, silver has a lot more upside potential in percentage return - and it is cheaper to buy then gold. Just look at the returns in the last 8 years, gold is up 232%, but silver is up 298%.

So, my advice is if your going to invest, you need to find which asset class is currently in a secular (long term) bull cycle. But, the other thing that you need to look at is what's happening with asset prices relative to inflation and the underlying gov't policies that are affecting inflation. What's the use of returning 5% a year if infation is running 7% a year? Oh, and just to give you a heads up, the gov't statistic that inflation is running at 4% is a crock. An item I bought in the grocery store 2 weeks ago increased in price by 28% in just that short period of time. Right now, the housing market is falling apart and the Fed decided to sacrifice the dollar to save the housing market. As the dollar continues to erode, you'll need investments that will protect your purchasing power. During the German Hyperinfaltion, the people that made it through and did well were the ones th