Many folks believe buying physical gold will protect their purchasing power over the long term. How often do we see comments here like, "I'm going to keep accumulating gold for the long term."
From an investment perspective what is only relevant is the investment life of the average person. It is completely irrelevant if buying physical gold today protects your purchasing power in 200 years time.
With that in mind I am going to debunk the myth that investing in physical gold is a safe and sound way to protect your purchasing power.
It is actually very simple.
Anyone investing in physical gold in 1979 or 1980 and paying US$400, US$500, US$600, US$700 or US$800 has had their purchasing power wiped out by that investment over a time frame of 34 years - more than 50% of the investment life of the average person.
Gold's 1980 peak of US$880 correctly adjusted for inflation over all those 33 years is now about US$7000. So we can see that someone who paid US$400 needs gold to be about US$3200 an ounce today to maintain their purchasing power.
Not only is that investor 34 years older, but the purchasing power of every dollar has been destroyed by their investment in physical gold. It has NOT been protected.
I mean is it any wonder. gold is such a pathetic performer when gold only makes a seriously strong upwards move over an entire calendar year once or twice in every 40 years. That alone should be a warning to stay well clear imo.
With that in mind is it any wonder that medium and long term investments in gold equities have been an absolute disaster.
You look at the gold bull this century and gold's rises over every calendar year have been so pathetic that the costs of mining gold have outstripped the nominal rises in gold.
Then throw in all the bullshit spun by so many companies - all the blue sky guidelines that are not met, all the production problems they encounter glossed over with pathetic excuses - and the persistent begging for more and more capital from their shareholders as dilution goes on unabated.
Is it any wonder that medium term investors have been obliterated across the board in their "quality" gold investments, with stock prices now down 60%, 70%, 80% and 90%. So much for offering protection!
The only "safe" way to play precious metals equities imo is to be absolutely ruthless - to buy when they are smashed and have a very tight stop. And be prepared to cop a 10% loss the day straight after you buy - as gold has a habit of falling unexpectedly overnight, and gold equities happily open the next trading day here gapping down 10%. A failure to apply that tight stop for reasons such as "the shares are cheap compared to gold" or "this company has brilliant fundamentals" can quickly mean that 10% loss turns into 20%, 30%, 40%, 50% and much more imo.
We've all heard of fool's gold.
Unfortunately this century's pathetic gold bull has turned many of our investments into "fool's gold" and made "fools" of investors in gold and gold equities.
