What’s Your Perception of a ‘Good’ Investment?

Stocks down, gold up.

What more is there to say than that?

There’s plenty more.

The markets are fearful. When they’re fearful, they look for safety.

But right now, where is safe?

It’s a good question. We’ll try to give you the answer…

In our view, no investment is truly ‘safe’.

Some will argue with that, but that’s how we see it.

Until 2008, most people would have said cash in the bank is ‘safe’. But after the bank collapses and bailouts, even the safety of cash in the bank needs to come with a qualifier.

The same goes for bonds. Before 2008, folks would refer to government bond yields as the ‘risk-free’ interest rate.

You don’t hear that term much anymore. That’s because folks have a new perception of risk.

So, if a truly ‘safe’ investment doesn’t exist, what’s the next best thing? That’s easy: own gold.

It doesn’t mean the gold price won’t fall

Now, we have to be clear, just because we advise folks to own gold, it doesn’t mean the price of gold can’t or won’t fall.

Since the peak in 2011, the US dollar price of gold is down 31%. And from the peak through until last December, it was down 45%.

In Aussie dollar terms, it’s a slightly different story. Gold priced in Aussie dollars peaked in 2011, and fell to a low in 2013. That represented a 29% fall.

But thanks to the gold price rally, and a weaker Aussie dollar, the gold price in Aussie dollar terms is now only down 7%.

But it’s still down. Despite that, we still argue that gold is a good investment compared to many other assets many consider to be much safer — for instance, cash.

Throughout history, paper money in its various forms has a surprisingly short lifespan.

Take the Australian dollar. It has only existed for around 50 years. Before that, Australia used pounds as a currency.

The current British money system of pounds and pence has only existed for just over 40 years. Before that, the Brits used pounds, shillings and pence.

And even that system had changed over the years, as British money came on to — and then went off — a gold and silver standard of money.

The US dollar has changed too. Sure, it has carried the same name for well over 100 years, but that doesn’t make it the same money. Until the early 1970s, the US had a gold-exchange standard. Foreigners (but not US citizens) could exchange their dollar bills for a fixed weight of gold.

Before that, US citizens could do the same thing.

Currencies in Europe, Asia and elsewhere change frequently too. The euro has only been around since 2001. The Deutsche mark, one of the currencies that preceded the euro, had only been around in its current form since the end of the Second World War.

This is OUR perception of a good investment

In short, if you hold almost any paper currency that was in existence at the start of the 20th century, it will likely be worthless today — except for any collector value.

But what about gold? If you hold gold that was minted in 1900, what would it be worth today?

Easy. It’s worth the current price of gold. Gold as a metal doesn’t change. In fact, it doesn’t do anything, unless you do something to it.

Yes, the price of gold can change as the value of currencies change, and as attitudes towards gold change.

If you’re looking for an investment that doesn’t change in price, then you should probably avoid gold.

But if you’re looking for an investment that doesn’t change in its composition — and will be the same in the future as it is today — then, in our view, gold is about as good an investment as you can get.


Kris Sayce,
Publisher, Money Morning

PS: You can’t get away from the US presidential election, and right now investors are looking for safety in the event of a Donald Trump win. That’s why we advocate the ‘Trump Trade’, and buying an asset we view as the best place to protect your wealth in a volatile market. There’s no secret about what it is. It’s gold. Details here.

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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