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January 16, 2010

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Hi Shaun,

At what point do you recommend selling the gold coins? Or is your strategy to hold for your lifetime?

-Mike

@Shaun
What are the pros and cons of investing in coins that are only worth their weight in gold versus rare gold coins that are no longer minted?

I personally am targeting 5% allocated to gold (not necessarily coin) as part of my retirement investing strategy. Currently I am at 2.6%.

The reason I am holding gold is that using my data sets for real (after inflation) gold and real S&P 500 since 1968 the correlation between the two is -0.34. This may give opportunities in the future for 'buy low sell high'.

Actually, it is VERY possible for the value of gold coins
to go to zero. First, suppose all our worst fears have come true,
and life is what is depicted in the movie "The Road", or "Mad Max".
Gold coins are not going to be much in demand by the survivors, or
they are going to be so much in demand that they aren't safe to have,
or use. When a muslebound psycho in a hockey mask points a gun at you
and demands you give him your gold and anything else, are you going
to say 'no'? A couple of cases of soap, toothpaste, toothbrushes and ammunition
are likely to be more valuable for barter..... LoL.
Gold doesn't pay dividends, and you pay to store it.

His argument about demand for gold being high sounds a lot like Real Estate agents' arguments about 4 years ago. Prices are high, but there's a lot of demand, so you can expect them to keep going up!

Eventually, bubbles burst. Gold is a bubble commodity right now. Most of its currently inflated value is due to investors who panicked last March, sold their stocks, and bought "stable" assets like gold. When that subsides, gold should drop in value.

I agree that most portfolios should use gold (and other precious metals) for stability over the long term. But right now we're in a "sell gold to the suckers" market; it's a bad time to buy into gold. Wait a couple years, or look to other precious metals that aren't inflated as badly.

Mike,
I don't think buying gold with the goal of making short term profit is necessarily a good idea -- usually coins cost a bit more than even the current price of gold, so you'd need to see the coins increase in value at least 10-20% to get your investment back in the short term. I use them primarily as a disaster hedge (supposing the dollar or market drop dramatically, I'll have the ability to cash in on cheap opportunities by liquidating gold assets).

Whether or not you should be buying or selling right now really depends on your view of economics and monetary policy. If you believe the dollar is going to have major issues over the next few months, or is in danger of taking some major hits, then wait a year or so for the inflation you're expecting.

If you think the inflation predictions are alarmist, then buying gold right now is probably a horrible idea, and you should liquidate your assets as soon as possible.

I'm personally in agreement with Jim Rogers -- the dollar is doomed, and I'm stocking up in commodities and gold and silver holdings in order to transition to the next strong currencies with ease.

Old Limey,
Buying old pre-1933 gold coins basically makes sure the government doesn't confiscate your gold. Remember, during the Great Depression, FDR confiscated private gold investments for dirt cheap -- basically robbing investors who were prepared with private gold holdings. But if you have pre-1933 gold coins, the government won't confiscate them, considering they'll be seen as "collector" coins.

Harm,
The end of civilization isn't really what I'm worried about, though I suppose you could go on out buy some water, twinkies and beef jerky if you're concerned. ;-) I'm more worried about the next few decades, as the United States loses economic strength to New Asian economies.

LotharBot,
Gold prices will not continue forever. I rarely think about investments for the short term, so I apologize if I sounded like I am encouraging too much speculation -- not my intentions -- the opposite were, exactly. I'm bullish on gold, but not just because there's a demand for it.

That said, I agree that this is a time to be selling gold if you're expecting the economy and dollar to completely recover. I most certainly do not, so I'll be increasing my gold assets.

Like most investing, when to buy gold for the purpose of speculative profit is a question of economic beliefs.

Thanks!
Shaun

Everyone here should recall the old investing adage that implores one to sell when all others say "buy"!
Gold, gold, gold! It's everywhere in the news these last couple of years. Everyone wants YOU to buy it. If they have it to sell, why don't they obtain more of it themselves if it's going to be the thing to have? Because there isn't a market for hoarding, only in getting others to buy and sell. Now would be the ideal time to sell provided that you had the foresight 10 years ago to buy gold when it was as low as $300/oz.
I agree with some of the above comments as far as accumulating the basic necessities...food, water, med supplies, and ammo!
If the worst comes, you're not going to go down to the local grocery and carve off a piece of your gold to buy a loaf of bread!

I like gold as a material but as an investment it's too scary to me. I feel this way for two reasons. 1) Gold as a monetary unit, I believe, is no longer valid. If all paper currencies failed there is just not enough gold to go around to be feasible. 2) There are too many large holdings in the world. A few countries have the lions share of the bulk gold. Any one of them could easily destroy the market within days if they felt compelled to flood the market.

IMO gold will always have value.

True, in the immediate aftermath of a post-apocolytic world food, water, weapons etc will be #1.

But eventually trade of some kind will start up again and things like gold will be the basis.

Let's hope we never have to find out for sure...

Does anyone think gold is overvalued? It's the popular investment these days which leads me to think of recent popular investments that popped - real estate, oil (there was no shortage by the way, it was pure speculation), bank stocks, etc. Gold makes me very nervous such that is also a bubble. Remember the 70's? Didn't it drop 50% in a short period?

Texas,

Who knows. Time will tell.

But being popular isn't such a bad thing.

Where else are you going to put your money these days that has a decent return and security??

(and is tax free! :-)) )

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