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Author Topic: What’s better than gold?  (Read 2908 times)

Offline georgewhittington

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What’s better than gold?
« on: June 26, 2013, 05:06:25 am »
Traditionally, gold has always been the first choice refuge of surplus wealth in unstable economic times and even in this highly educated day and age, that myth is still avidly pursued. The fact is, real estate over the last several hundred years has and continues to dramatically outperform gold as the staple refuge of informed wealth.

Of course, there are many contrasts to each of these investments but if you consider the benefits of both products a little more carefully, you will understand what we’re saying here. The bottom line is though, the last place you want to park your surplus wealth is in a bank.

Whether you are in your aggressive years or in the twilight of your career, there is no other way for your future’s security but venturing into some form of investment and more often than not, the investment road is twisted, forked and pitted with dilemmas which even savvy investors secretly fear to tread.

Gold is easily stolen, especially if you physically hold it in your home or in a secret “safe” location. Once word gets out you’re holding gold, life gets a little tougher right there. If you invest in gold on paper or through intermediaries, you end up right back at trusting the banks or similar institutions and historically that’s not a very sound idea. All you have to do is consider the behavior of Goldman Sachs, Bank of America, et al in the last five years to fully grasp what we’re saying here.

Real estate on the other hand is much harder to steal unless of course you screw up your title paperwork which occurs occasionally – but only when you’re careless with it.

The main disadvantage of choosing RE over gold is the fact that gold is inanimate, needs no attention once you acquire it. You buy it and where ever you leave it, it will just sit there awaking your next decision. A nice piece of cash flowing RE is live and animated to the point of having a personality. Therefore it has to be nurtured. That means some work will be required, even if it means just reviewing a report and taking a few decisions once or twice a year, depending on how much nurturing you want to do. The fact is, the more you nurture cash flowing RE or have someone competent do it for you, the better your rate of return.

That’s the heart of this issue right there – gold does not cash flow! It never has and it never will. Same as RE values, its pricing will pinball all over the place during economic uncertainty and sometimes as in the seventies and eighties, gold values will simply stagnate for decades. Yes, there are a lot of people who still think a stagnant investment like gold is “safe” and only the savvy investor fully understands the nature of the various types of inflation we’re living with. Inflation, which in the current economic climate has become almost an incestuous topic; the commentators and investment gurus simply refuse to acknowledge it as a serious consideration or just ignore it entirely as a factor of any investment strategy; a felonious error by any standards

Real estate is actually the better hedge against these various types of inflation. Rents are tied directly to income of the renter. For example and we’re using a generality here, people are happy to pay an average of 25-40% of their income/profit to keep a roof over their heads or businesses –we hasten to add that this is not so much the case with commercially let RE. However, if you look at any competent business plan for a business start-up that requires property rental, the numbers will speak eloquently for themselves.

The fact is, RE will respond more quickly to inflation, because with inflation, wages, income and product values increase as do your rents – if you’re nurturing your RE investment or you have someone capable and honest do it for you.

This income-generating versatility of cash flowing real estate investments has never been matched by the nuances of the financial investing in gold. Whereas gold investment still has the cost of marketing the metal to gain income by which they lose their future security, RE investors with stabilized incomes can readily source finances at any time without losing the ability to secure their financial futures.

There are variable risk determinants with some RE investments, but if nurtured competently, they balance out with the monthly cash flow that adds up to long term profitability. It you hold a stagnating but stabilized rental property for 10 or 12 years, your tenants will pay you back your investment in full and then you’re free rolling. With gold, its valuation only increases when world market prices shoot up. What’s more, the profits arising from the selling of gold are taxed immediately and there are no deferment options – unlike RE.

Gold investment cannot offer tax incentives or benefits no matter how much has been invested into it. Cash flowing real estate investments provides all the necessary discounts and standard deductions which investors avail from any other small-scale investments, like purchasing of stock dividends. In addition, cash flowing real estate counterbalances the overhead costs incurred in the investment process. In other words, when purchasing stabilized real estate, the investor will have the ability to either deduct a full, or at the minimum, half of the monthly amortization from the total price and thereby, eases the strains of any capital expenditure.

Stabilized cash flow really is better than gold!

Offline Mike Nelson

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Re: What’s better than gold?
« Reply #1 on: June 26, 2013, 04:12:57 pm »
Thanks for this, georgewhittington! Very well-said.
Mike Nelson
Investor/Blogger/Educator/Mentor - www.WholesalingHouses101.com
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Offline Gold River

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Re: What’s better than gold?
« Reply #2 on: June 27, 2013, 04:06:05 am »
Hi,

    Say it isn't so George, dishing on gold, throwing gold under the bus, putting gold out to dangle in the wind!

Ok, with that said gold has been an outstanding investment "For Me"! Now as a commodity trading among various folks, traded between brokers, sold by various firms touting "The sky is falling, the sky is falling" quite frankly it sucks!

Now I know your thinking what makes you so special, how is it gold has been so good for you? Because we mine it, we pull it out of the ground, massage it, feel it and throw it all in a pot, melt it down and sell it, and we make damn good money doing it!

Now George was right, as an investment by individual people it is a poor investment, not to say there's not money to be made as getting in on the market at the right time and riding a run going up, or jumping in and "Going short" as the market falls people make decent money, but owning gold and thinking it will eventually go up to $5,000 , $10,000 or $50,000 an ounce shows how little people know about gold!

We all sit here and hear commercials touting "Silver soon to make a run", "Gold seen as great investment", "Gold a great hedge on inflation", "Everyone should own 10% of their portfolio in gold", "Gold hits bottom and economists see a new bull market beginning", "Gold is a great investment in these unknown economic times". Well you get the point, but have you ever heard a broker or advertisement saying "This is a poor time to purchase", or "The Market is stagnant"?

Of course not because as an investor brokers want you to feel the need, the want and the desire for that pretty gold metal! And why not after all brokers make their money based on commissions. If gold trades for $1200 dollars a broker can make upwards of 12% on gold or silver, owning physical gold but storing it provides a brokerage additional storage income.

If you sell an ounce of gold or silver today you typically get "Spot Price" but when that one ounce bar is resold you typically pay commissions which at $1200 an ounce amounts to upwards of $ 144 dollars, so when you make that one ounce purchase gold has to exceed $1344 for you to make even one dollar of profit.

Now brokerage fee's vary, they want to sell you on the phone "Our normal commission is 12% but if you will purchase this 5 ounces today we can lower our commission to 5.5% or $66 per ounce. Awfully nice of these people, right!

Well, gold has value make no mistake and it's history is impressive so let's look at gold history.

During US history gold sold for roughly $20.67 dollars per ounce while silver sold for $1.29 per ounce. The 1934 gold reserve act prohibited private ownership of gold and required gold and gold certificates be turned into the government, it also readjusted the price of gold from $20.67 to $35 dollars per ounce.

Now in modern times the gold reserve act was repealed in 1974 allowing Americans once again the ability to private ownership of gold, now the US went off the gold standard in 1973 sending gold to a market value of $120 an ounce.

Now since 1973 in modern times mining has produced roughly 2 billion ounces of gold over the last 40 years, this years gold production will exceed 75 million ounces. In history and prior to 1973 it is estimated the world mined and produced roughly 1 billion ounces of gold.

Now for those who don't know how to convert or estimate gold a troy ounce is 31.1 grams and there are 12 troy ounces to a pound and 2000 pounds to a ton, so a ton contains 24,000 troy ounces (12 x 2000 = 24,000) for some reason our reporters like to refer to gold sales in tons which tend to make investors feel there is real market movement.

Now the US dollar is not connected to gold, so there is no correlation between the two markets, now historically empires and nations sought gold to strengthen their financial might and as a medium of trade, however in modern times as George pointed out gold is a poor hedge on inflation.

Now how do you think gold could suddenly take off, hit a million billion trillion dollars per ounce? It can't as mining 75 million ounces per year and dumping that additional quantity on the market will never allow gold to scale to new heights, in fact I believe gold is still going lower.

Now it cost's money to get gold out of the ground; labor, equipment, insurance, fuel and overhead cost's us money and we can not go back to $260 an ounce and still provide jobs mining gold, our cash costs today average around $450 per ounce so even retreating back to a basic bottom line gold would have to stay above the $550 to $650 dollar range.

But I have told friends, in fact I have one who didn't listen and lost big money this last year. Now if gold were such a good investment against inflation why isn't everybody buying it, well the long and short of it is the people making big money on gold is:

Mining companies - We currently make a 174% profit per year on cash invested!
Material and Equipment Providers
Fuel and Lubricants providers
Smelters and refiners
Investment Brokerages
Precious Metals Companies

Now if gold were such a good investment and hedge on inflation then why is the jewelry industry buying more than 50% of mined gold every year, that's right over the last 40 years roughly half of all gold mined has been processed and manufactured into gold jewelry being sold retail for 100%, 200% or more in profits.

A 14k gold chain weighing 10 grams is only 5.833 grams of pure gold, but typically you will pay two or three times the spot price to buy a chain of this type brand new, now we don't think twice about buying something nice for our wife, daughter, that special aunt, our mothers or grandmothers; as men buying gold jewelry is a practical way out of the dog house!

As an investment gold has to exceed cost, not spot price to provide profits, it is much like investing in the Forex markets what you can make is long or short of the days opening price and closing price, which unless you have the ability to buy a million or more in gold your returns are so small anyway it doesn't make much of a difference.

Gold has value we use it for jewelry, electronics, glass coatings, plated products, etc. Gold will never be worth nothing and one day thousands of years from now when the world can no longer find and mine gold then and only then will gold start going through the roof if there is anything worth buying it with by then!

It is a medium of trade, in the event of some disaster keeping cash from being available gold makes a good medium of trade as it's easily carried in smaller quantities and easy to weigh and can be traded at market value or a potential premium value!

I have a lot of physical gold in my home as I collect gold specimens from around the world and have built over the years a world class collection, in fact most years you can find me in early February at the Tucson Gem and Mineral show adding to that collection, however my collection is locked up tight in a safe and not out on display.

I have never had issues with owning or possessing gold at home but I also don't think most thief's are stupid enough to believe theirs no security precautions and awaiting door prizes (Lead) for someone who might get stupid!


                   Gold River     :biggrin
 

« Last Edit: June 27, 2013, 05:10:41 am by Gold River »

Offline Gold River

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Re: What’s better than gold?
« Reply #3 on: June 27, 2013, 04:58:13 am »
Hi,

    If I was going to recommend an investment which makes better market sense it would have to be silver as their has been an ongoing world shortage of silver because of demands for jewelry, electronics, glass coatings, plated products and scientific qualities and the only reason we continue to make it through each year is the amount of silver recovered from scrap and silver being produced as a by-product of other mined materials.

Silver for centuries ran a parity with gold of 16 to 1 so with gold for example at $1200 per ounce silver should trade at roughly  $75 per ounce. But a world shortage has been putting added pressure on silver for over 10 years and it's just a matter of time until we will see a demand / supply shortage of the metal!


                 Gold (Silver) River

Offline Randoskie

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Re: What’s better than gold?
« Reply #4 on: June 27, 2013, 11:05:12 pm »
I wud be scared to put my money in Gold or Silver or platinum and even Real Estate now. Am I paranoid and am I the only one that has this weird feeling that because of this crazy government spending and especially this unexplained war that's costing billions every day this Countries financial system is is headed for the financial crunch of all times. (The mother of all Collapse)  And I sure as heck hope I'm wrong. Doom and gloom is not what I'm preaching, I just have this gut feeling that the downturn 5 yrs ago was just a bump.
But, untill then, let's flip some houses.   Rando

 




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