Lots of people are asking about gold. They have been asking about buying gold for several years. I have said to Julie, who has a lot of gold jewellery, that if she has a gold sale, I will beat it. Same with silver.
So I advise buying gold?
Yes. Cant go wrong. But you have to ask why you are buying it.
My view is, if you have a lot of investment funds and dont know where to put them, then a large proportion sunk in gold wont be a bad decision.
However, I dont tend to invest on a forward basis. I invest what could be said to be backwards. I look at the end result projected, and work from there. I also look at every investment from the fundamental truth that you make your money when you buy, not when you sell. That means you need to buy right.
Let me give several examples.
I bought real estate from 1992 to 1997 because it was ridiculously undervalued. I started on the south coast, and gradually over a period of five years worked my way west from Sussex to Devon. Idiots bought when prices were high, and p/e ratios were well over ten. I bought when they were back down at 1. Ten is a fair value. Anything above is expensive. Anything below is probably good value if prices are rising but not if they are falling.
Long term readers will be bored to hear that an essential metric is interest rates. If they are low, they can only rise. You dont want that. If they are high they can only fall. That’s what you need, but high interest rates are not enough, they need to be falling.
You now have high prices, rising interest rates, and a sagging market. That means prices will fall making any recent purchase lose money. Interest rates are rising, meaning your purchase is going to cost more in the future.
If you buy my book on real estate, you will find I run various test scenarios regarding prices and interest rates. Here’s the link: https://www.amazon.com/dp/B07D3ZW8D2
You buy when prices are on the floor and interest rates are high but beginning to fall.
That’s how it works with real estate. With precious metals the theory is the same, but the mechanism is slightly different.
In 1987 I sold stocks and bought gold. We had a similar situation than to today’s market instability. I was chuffed when the market crashed and Julie and I swanned off to the Canary Islands for a luxury winter with my gold holdings buoyant.
It wasn’t until the following spring when I looked at my holdings that I realised I had made a bit of a mistake.
There is a pattern in investments that is immutable. When your core investments fall, you cut and run. You bolster up other investments until that no longer works, and you are forced to sell your solid investments to cover the losses on the duff investments. That depresses the price of the good investments.
What you need to do is follow the age-old investment theories. Buy low, sell high. Most people get caught and end up doing the opposite.
You do not buy gold at the beginning of a crash, but after there is blood in the streets. After a big crash almost no-one is left standing. Those who bought gold can at least survive by selling it, but that is when you buy.
Here’s the scenario. Buy after a crash when prices are low and can only rise. Hang on until there are dark clouds on the horizon. Sell before the next crash, and go into hiding. When all is doom and gloom, buy back into gold. When the property market is totally trashed and no-one is buying, go out and buy, pretending to the bank manager if necessary that you are going to buy a car. You usually have a two year gap when no-one wants to know about property before the penny drops that it is a good investment after all, by which time you’ve bought at rock bottom prices.
So should you buy gold just now?
We haven’t had a crash yet, and folks aren’t liquidating positions, and as far as I can see although there are constant warnings of wipe-out, I dont see that at all. Wipe-out usually comes when no-one expects it. Too many people expect it now, so we are going to have continued wide swings in the markets. Gold will sag when investors are forced to sell their gold to support their other positions, that’s when to buy…. that is unless it’s different this time. But I’m in no hurry.