First a Haiku…O greater fool, mind’s lost.
The wind swept you in
Now you are left holding the bag.
Gold and silver are great assets to have, if you like jewelry and silverware. However for your portfolio, precious metals have been terrible investments. From 1802-1996, gold delivered a compound return of .06% adjusted for inflation. Yes, you read that right. Comparatively, stocks were up 5.9% adjusted for inflation over the same period. In fact, gold hasn’t even kept up with inflation which has risen at a 1.3% compounded rate. Don’t be fooled by those who claim that gold is an inflation hedge. Only productive assets of a company that are capable of generating a stream of increasing earnings can show growth in real terms. Think of it this way. A manufacturing company generally trades at a multiple of its book value or physical assets. This is because these assets derive an income stream which if operated properly can produce steadily rising profits. In times of rising inflation, the market recognizes that these assets become worth more in value and adjusts the value of a company’s assets to approximate their real worth. No such luck with gold or silver.