Certainly RS'ers have not failed to notice the continued rise of gold prices.  Back when I started purchasing gold at the beginning of 2006, it was priced at around $560-$580 per ounce.  It has set another record today, reaching $1720 per ounce.

I thought a bit about how gold compares to other investments (and again, keep in mind that I understand that gold is not an investment in the traditional sense of the word.)  I look at it as a hedge against inflation, and speculating on the government making poor economic decisions (not much of a gamble, right?)

When Nixon closed the gold window in August 1971, gold was priced at $35/oz.  At this time, the DJIA was around 900 (908 on August 27th.

With the DJIA today at 10926.33 and gold at $1714:

Gold has produced an annualized rate of return of 10.2% over the last 40 years
the DJIA has produced an annualized rate of return of 6.4% over the last 40 years.

I chose 40 years, not to cherry pick data, but simply because this was when the US defaulted and let the price of gold float freely.

What do you guys think?  Why has gold outperformed broad stock indices in the US so significantly over the past 40 years?  Even if you look at gold from '71-'99, when gold hit a 20 year low of $252, you still get a 7.3% annualized return (riding the DJIA bubble over this same period would have netted you 9.1% if you timed it exactly right).

Also an interesting note:  The DJIA in 1999 was only about 300 points lower than it is today.  The college grads who began investing for their retirement in 1999 have seen no return on their investments (and since their dollars are less valuable now than they were 10 years ago, they have actually lost ground.)  I remember back in those days people were saying that the stock market, in the long run, always goes up, and that the stock market was the sure-fire was to save for retirement over the long haul.

Silver. Bullion. You give up a bit of the upside with physical delivery, but you gain a hedge against the sh## really hitting the fan (and silver coins are still in increments that can be useful for real-world use as a medium for exchange). In any event, we're about to see some serious world-wide inflation, as the various failing experiments with socialism attempt to print their way out of debt, so my advice is to invest in something tangible, reasonably easy to store, conceal and transport and at least marginally useful should things get Argentina or Weimar Germany bad. That narrows it down to silver, canned food and ammunition. Take your pick.

TL:

Gold has produced an annualized rate of return of 10.2% over the last 40 years
the DJIA has produced an annualized rate of return of 6.4% over the last 40 years.

Are you including dividends in the DJIA return?

I think gold is now hitting bubble levels.

I like silver too (a little more than 1/3 of the value of my PM are in silver) but I'm curious as to why you don't like gold (or maybe you do and I misread you.

Silver has the advantages you pointed out, but gold is much easier to hide and transport, which is definitely an advantage as well if the Weimar scenario comes to pass.

I definarely see a stronger upside to silver, and you can avoid the higher premiums by buying "junk silver" which comes in smaller weights which is an added bonus.

No, this does not count dividends (these were all back of the napkin calculations and I couldn't think of an easy way to include them in my numbers)

However, I should have noted that I didn't include them. Thank you for pointing that out. I expect that including dividends would change the gold from "significantly outperforming the DJIA" to "outperforming the DJIA".

Why do you think gold is approaching bubble territory? I would be surprised to see a 10% or more correction (there have been a few of those on the way up!) but I don't see any sign that it is overbought. In 1999 you'd hear people in the checkout lines at grocery stores talking about te new tech stocks. Same in 2006 with housing...you had to "get in the market, quick!" (I was able to convince one of my friends not to buy, but unable to convince another one...he is STILL underwater 5 years later.)

However, I still talk to people about gold and get blank stares from them. Or they'll say, "why buy gold? It isn't backed by anything." People don't understand gold, which is why I don't think we are anywhere near a bubble.

I heard gold dropped in price yesterday.

Now may be about the worst time to buy into a commodity that has been rising in price for a decade. At some point people will need to sell up to realise the value of their gold, and a global recession would appear to be a time to do that.

Oh, and a lack of understanding does not preclude a bubble. hardly anyone understood CDS, but there was one hell of a bubble there.

mach

as the various failing experiments with socialism attempt to print their way out of debt,

What about those experiments with socialism that are doing okay?(I use the term really loosely since by your terms i'm pretty sure most of the Western world are socialist wankers.

Gold?
Buy low, sell high!!
There's a reason few "retail investors" do really well in commodities or stock trading. They have neither the deep pockets nor dsicipline. And they generally move when the pack is moving. Buy too late, sell too late. That and they end up buying through retail structures with high commisisons and service fees..

I like silver, Theo, because it comes in small enough denominations to be useful in day-to-day trade. A 1/10 oz. coin is physically very small (smaller than a dime), but current value is in the $180 range. Hard to buy groceries with that, if it comes to it.

Note well that I see purchase of bullion as a hedge, not an investment. It's a hedge against the collapse of fiat currencies, which although still a remote possibility, is no longer unthinkable. Like a fire insurance policy, it is unlikely to ever pay a return. But should the circumstances that make it useful come to pass, it will be very valuable, indeed. I wouldn't put a significant fraction of my wealth into it, but I do think it's prudent to have $10-20K or so where I can put my hands on it in a hurry should the need arise.